Below is a raw (and likely hideous) rendition of the
original report.
(PDF)

United States General Accounting Office
GAO Report to Congressional Requesters
April 1999
COMMUNITY
DEVELOPMENT
Weak Management
Controls Compromise
Integrity of Four HUD
Grant Programs
GAO/RCED-99-98
United States
GAO General Accounting Office
Washington, D.C. 20548
Resources, Community, and
Economic Development Division
B-281322
April 27, 1999
The Honorable Wayne Allard
Chairman, Subcommittee on Housing
and Transportation
Committee on Banking, Housing,
and Urban Affairs
United States Senate
The Honorable Rick A. Lazio
Chairman, Subcommittee on Housing
and Community Opportunity
Committee on Banking
and Financial Services
House of Representatives
In response to a request by you as Chairman of the Subcommittee on Housing and Community
Opportunity, House Committee on Banking and Financial Services, and the former Chairman of
the Subcommittee on Housing Opportunity and Community Development, Senate Committee on
Banking, Housing, and Urban Affairs, this report discusses whether controls are in place to
ensure that block grant programs’ objectives are being achieved and that funds are being
managed appropriately. In particular, the report discusses whether (1) the Department of
Housing and Urban Development’s (HUD) on-site monitoring of grantees under the Grants
Management System is adequate and (2) the Integrated Disbursement and Information System
provides the data HUD needs to accurately assess grantees’ performance.
As arranged with your offices, unless you publicly announce its contents earlier, we plan no
further distribution of this report for 30 days after the date of this letter.
We are providing copies of this report to Senator Connie Mack, the Chairman of the
Subcommittee on Economic Policy, Senate Committee on Banking, Housing, and Urban Affairs;
the Honorable Andrew Cuomo, the Secretary of Housing and Urban Development; and other
interested parties. We will also make copies available to others upon request. Major
contributors to this report are listed in appendix II.
Judy A. England-Joseph
Director, Housing and Community
Development Issues
Executive Summary
About one-quarter of the Department of Housing and Urban
Purpose Development’s (HUD) budget—almost $6 billion in fiscal year 1998—is
devoted to four formula block grant programs that support community
development: the Community Development Block Grant Program, the
Home Investment in Affordable Housing Program, the Emergency Shelter
Grant Program, and the Housing Opportunities for Persons With AIDS
Program. While each of these programs has a different purpose, they all
provide federal funds to help grantees—primarily state and local
governments—finance projects and services for local residents. In 1995,
HUD revamped its approach to managing these formula block grants by
requiring grantees to develop a consolidated plan that lays out how they
will use all four programs. As part of its revamped approach, HUD changed
its monitoring of grantees to reflect the collaborative relationship it was
trying to establish with them. Under this approach, known as the Grants
Management System, HUD developed the Integrated Disbursement and
Information System so that grantees could enter information into a
database that describes their planning and projects, draw federal funds,
and inform the Department about how they are using those funds and
what they are achieving with them.
Concerned about changes in HUD’s approach to program monitoring, the
former Chairman of the Subcommittee on Housing Opportunity and
Community Development—now the Subcommittee on Housing and
Transportation—Senate Committee on Banking, Housing, and Urban
Affairs, and the Chairman of the Subcommittee on Housing and
Community Opportunity, House Committee on Banking and Financial
Services, asked GAO to assess whether controls are in place to ensure that
the block grant programs’ objectives are being achieved and that funds are
being managed appropriately. In particular, GAO examined whether
(1) HUD’s on-site monitoring of grantees under the Grants Management
System is adequate and (2) the Integrated Disbursement and Information
System provides the data HUD needs to accurately assess grantees’
performance.
The Grants Management System and the Integrated Disbursement and
Background Information System are administered by HUD’s Office of Community
Planning and Development through 42 field offices throughout the United
States. The Grants Management System—which HUD developed to
deemphasize compliance monitoring of grantees and to promote a more
collaborative approach that includes up-front assistance and a reliance on
grantees’ monitoring systems—uses the Integrated Disbursement and
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Executive Summary
Information System as its chief monitoring tool. Allowed considerable
independence in carrying out the Grants Management System, the field
offices develop their own work plans, conduct their own evaluations of
grantees to determine which need more oversight and assistance, set their
own monitoring schedules, and determine the type and amount of
technical assistance they provide to their grantees.
While the Grants Management System provides a logical, structured
Results in Brief approach to managing the four block grant programs, HUD’s monitoring
under the system—including on-site monitoring of grantees and the
Integrated Disbursement and Information System—does not ensure that
the programs’ objectives are being met and that grantees are managing
their funds appropriately. HUD considers its on-site monitoring of grantees
essential, but GAO found this monitoring is inadequate. The five field
offices GAO visited (accounting for about 20 percent of all block grant
funds in fiscal year 1998, or $1.18 billion) conduct on-site monitoring
infrequently because of a shift to a more collaborative relationship with
the grantees and because of a lack of resources, according to the directors
of the field offices. Furthermore, on-site monitoring seldom targets the
grantees that receive the poorest evaluations from the field offices
compared with other grantees, and this monitoring is not uniform or
comprehensive because the field offices lack specific guidance. The
reviews of some grantees conducted by GAO and others, especially HUD’s
Inspector General, have identified significant problems in grantees’
finances and performance. And while such reviews are not generalizable
to all block grant programs, these reviews, along with the breakdowns in
monitoring, call into question the integrity of programs funded at nearly
$6 billion in fiscal year 1998, including their safeguards against fraud,
waste, and abuse. This report makes recommendations designed to
improve the integrity of the block grant programs.
For its part, HUD’s Integrated Disbursement and Information System does
not provide the information the Department needs to accurately assess
grantees’ performance and thus does not compensate for these
breakdowns in monitoring. Fraught with major design flaws, the
information system makes the process for establishing and maintaining
accounts difficult and provides ample opportunity for major problems
with entering data, does not allow such problems to be corrected easily,
cannot track the program income from the revolving funds that grantees
establish, does not provide timely and accurate information, and has
difficulty producing reports. GAO also determined that the security controls
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Executive Summary
for the information system are weak and therefore do not provide
assurance that the system is safe from fraud and abuse. This report
recommends modifying or replacing the Integrated Disbursement and
Information System, whichever is more cost-effective, and taking other
steps to improve system security.
Principal Findings
Monitoring Under the Although HUD’s Grants Management System Policy Notebook states that
Grants Management on-site monitoring is an essential tool for determining whether program
System Does Not Ensure requirements are being met, it does not specify when on-site monitoring
should be done. During fiscal year 1998, the five field offices GAO reviewed
That the Programs’ conducted visits to 33 grantees, or just 14 percent of their 228 grantees.
Objectives Are Being Met Moreover, while HUD’s annual comparative review of grantees’
and That Grantees Are performance is intended to target the grantees most in need of attention,
Managing Their Funds only 38 of the 85 grantees HUD had originally designated for on-site
Appropriately monitoring were determined to be among the lowest performing grantees,
or those needing the most oversight or assistance. Of the 33 grantees that
actually received on-site monitoring, only 15 were among the lowest
performing. According to the directors of four of the five field offices, the
level of on-site monitoring fell by 88 percent from 1990 through 1998
because of the shift to a more collaborative relationship with the grantees
and a lack of staff resources to conduct on-site monitoring, combined with
increased responsibilities for field office staff. Despite recognition of this
problem, the Office of Community Planning and Development has not
conducted a workforce analysis since 1996. Furthermore, the on-site
monitoring that does occur is not uniform or comprehensive because the
Policy Notebook does not specify the issues that should be covered during
a visit. Another problem is the latitude granted field offices in evaluating
grantees’ performance. The Policy Notebook provides the individual field
offices with considerable discretion in targeting grantees for review.
In visits to 11 grantees, GAO found significant problems that could have
been detected with on-site monitoring. Some project files had no evidence
that the grantees monitored the recipients of funds, such as nonprofit
organizations, and in one instance, the grantee acknowledged that it had
not monitored any of its recipients in the 1998 program year. Other files
lacked documentation to support payments and to justify cost overruns,
including one overrun of about $100,000. At one grantee, the nine project
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Executive Summary
files GAO reviewed lacked such key information as certifications that the
recipients have low or moderate incomes, statements of work, and
contracts, making determinations about the grantee’s performance
impossible. Similarly, in 11 reports since the implementation of the Grants
Management System, HUD’s Inspector General has found that grantees are
not complying with financial and performance requirements and has
questioned the expenditure of about $26 million. The Inspector General
has also faulted HUD’s monitoring of grantees. In some cases, the Inspector
General could not determine the extent of this monitoring because of
missing information, and in other cases, HUD had not annually assessed
grantees, as required.
The Integrated Although the Integrated Disbursement and Information System (IDIS) was
Disbursement and designed to provide complete, accurate, and timely information on
Information System Is Not grantees’ expenditures and accomplishments, these goals are not being
achieved because of four significant problems. First, because of flaws in
Providing Needed the design of the information system, grantees have had to enter the same
Information information multiple times—into another of HUD’s information systems;
into IDIS, several times; and into the grantees’ own systems for reporting to
their city—which could result in errors simply because of the multiple
data entries. According to HUD, as of mid-February 1999, grantees had
access to a batch file transfer process, referred to as Electronic Data
Interchange, which allows grantees to automatically extract data from
their own information systems and enter it into IDIS. Another difficulty is
the time involved for grantees to access and use the system; in visits to
grantees, GAO observed that accessing the system took as long as 40
minutes.
Second, when grantees enter incorrect information into IDIS, making
corrections is difficult. Five of the 11 grantees GAO visited reported having
multiple, significant errors in the system that they could not readily rectify.
To make the corrections, IDIS technical staff sometimes instructed the
grantees to create fake activities within IDIS (“dummy accounts”) to
reverse the incorrect data—although some of the grantees GAO spoke with
were reluctant to do this because the information could appear to be
inaccurate or fraudulent to outside observers.
Third, IDIS cannot track program income as it is received from the
revolving loan funds that many grantees establish for such things as
economic development loans. IDIS operates on the assumption that
program income, from whatever source, should be used immediately to
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Executive Summary
fund the next activity. That is, the system cannot segregate income from
revolving funds from other program income, although regulations permit
grantees to preserve program income for reuse exclusively in their
revolving funds. To work around this limitation, HUD instructs grantees to
delay entering information on such income until they are ready to spend
the money, but this approach requires grantees to keep two sets of books
and prevents HUD from using IDIS to determine how much income grantees’
are earning from their revolving funds and if grantees are meeting a
regulatory requirement to spend grant money in a timely manner.
Fourth, while IDIS was intended to allow HUD to track grantees’
performance on a real-time basis, it does not do so. IDIS does not require
grantees to enter performance information before it releases grant funds
to them. Grantees can obtain all funds for an activity without entering any
performance information about it, and most of the grantees GAO visited
waited until the end of the program year to enter information, when they
were required to complete annual reports. And after grantees have entered
the performance information, they have found that printing reports is
difficult, requiring staff to work through a number of computer
screens—as many as 70 at one field office GAO visited. GAO also determined
that the security controls for IDIS are weak and therefore do not provide
assurance that the information system is safe from fraud and abuse.
Although GAO’s Standards for Internal Controls states that users should
have limited, or segregated, access to a computer system according to
their responsibilities,1 GAO found instances in which particular users at
grantee locations had access that allowed them to both establish activity
accounts and draw down funds, thereby increasing the opportunity for
undetected errors or fraud. GAO also found instances in which terminated
employees retained access to IDIS. According to the HUD official
responsible for IDIS security, the staff resources devoted to arranging
access for grantees are strained. Just he and two others handle the
thousands of requests for access, he explained, and they cannot review the
requests for appropriateness. In addition, GAO found that the security
officer was not knowledgeable about computer security; the officer
acknowledged that while he is familiar with computer networks, he has
not done any work in security and has had no pertinent training. HUD is
now developing a new Department-wide information system based on IDIS
to manage all of its grant programs. IDIS’ major functions are to be
converted to a Windows environment, which will be more user-friendly.
But given the extent and nature of the problems with IDIS, GAO questions its
1
GAO Internal Control: Standards for Internal Control in the Federal Government Exposure Draft
(GAO/AIMD-98-21.3.1.).
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Executive Summary
use as a model for the Department-wide system. To address the problems
GAO identified, IDIS will need to be modified extensively or replaced,
whichever is more cost-effective.
To improve the integrity of the four block grant programs, GAO
Recommendations recommends that the Secretary of Housing and Urban Development direct
the Assistant Secretary for Community Planning and Development to
(1) emphasize the importance of on-site monitoring by specifying the level
of grantee performance that requires it and the steps that should be taken
in conducting it; (2) conduct a workforce analysis to determine the
resources that may be required to better support the monitoring of
grantees; and (3) improve the Grants Management Process information
system by providing guidance to the field offices to ensure that they are
entering information consistently. GAO also recommends that HUD consider
whether it is more cost-effective to modify IDIS or replace it. Furthermore,
before IDIS is used as the base for developing the new grants management
information system for all of HUD’s grant programs, GAO recommends that
the problems it has identified with IDIS be corrected.
Lastly, HUD should immediately take steps to ensure that access to the
Integrated Disbursement and Information System (IDIS) is appropriately
limited and to ensure that the security officer for IDIS is fully aware of his
responsibilities and has the appropriate training and staff. Chapters 2 and
3 contain additional details on these recommendations.
GAO provided HUD with a draft of this report for its review and comment.
Agency Comments HUD disagreed with a number of points in the report. HUD did not comment
directly on the recommendations aimed at strengthening the integrity of
the formula grant programs or improving the Integrated Disbursement and
Information System. (See app. I.)
HUD commented that the report is unduly critical of its controls over the
four formula block grant programs. HUD offered two overall reasons for
this view. First, it commented that the report did not document the
large-scale changes that HUD had undertaken and that have led to
significant managerial improvements and strengthened accountability in
the programs. Second, HUD disagreed about the extent of on-site
monitoring of grantees that was necessary to provide effective
management oversight, noting it has “taken a more comprehensive,
Page 7 GAO/RCED-99-98 Community Development
Executive Summary
modernistic approach”—that is, an ongoing, continuous process of which
on-site monitoring visits are one of several elements.
GAO’s report recognizes that HUD has undertaken important changes to
improve program management and accountability. It notes, among other
things, that HUD has revamped its approach to managing the programs by
requiring grantees to develop a consolidated plan that lays out how they
will use the funds for all four programs, changed its monitoring of grantees
to reflect a collaborative relationship, and developed the Integrated
Disbursement and Information System so that grantees could, among
other things, enter information describing their planning and projects and
draw federal funds. GAO’s report also concludes that HUD’s revamped
system provides a logical, structured approach to managing the block
grant programs and that HUD has recognized the need for effective systems
for overseeing the handling of program funds and the achievement of
program objectives. Furthermore, GAO added to this report information on
management improvements made to the Grants Management System that
HUD reported after GAO had completed its field work. This information
included, for example, HUD’s distribution of additional instructions for
incorporating more traditional risk elements, such as unresolved audit and
monitoring findings, into the field offices’ annual comparative review
process.
GAO also agrees that HUD has taken a more ongoing, continuous approach
to monitoring grantees and that this approach can provide useful insights
into grantees’ problems and achievements. However, GAO questions
whether, at this time, approaches other than significant levels of on-site
monitoring of grantees can adequately ensure that program objectives are
being met and that funds are being managed appropriately, given the
shortcomings of the Integrated Disbursement and Information System and
other monitoring tools, such as consultations and technical assistance
visits. GAO believes on-site monitoring is currently all the more important
to compensate for these shortcomings. This is not to say that on-site visits
should be made to every grantee each year; but rather, GAO believes
periodic visits to grantees HUD identifies as needing improvements are
essential.
HUD also did not comment on GAO’s findings about the accuracy,
completeness, and timeliness of the Integrated Disbursement and
Information System information on grantees’ expenditures and program
performance. Instead, it commented that GAO’s assessment fails to
consider recent efforts to improve it. HUD provided compensating factors
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Executive Summary
for some of the Integrated Disbursement and Information System’s
weaknesses and pointed to recent and planned changes to the system it
believed will correct these problems. GAO believes that HUD’s recent and
planned changes could, if properly implemented, improve the Integrated
Disbursement and Information System. However, the numerous additional
problems in usability, accuracy, and security still compromise HUD’s ability
to ensure the integrity of the four formula block grant programs.
Therefore, we did not make any changes to our recommendations.
GAO continues to believe that HUD’s revamped approach to managing the
programs, as implemented, does not provide adequate assurance that the
four block grant programs are meeting their objectives and that the funds
are being managed appropriately. In the draft of this report, GAO proposed
that HUD provide clearer and more detailed guidance on the factors that
should be considered in evaluating grantee performance, with a heavier
emphasis on factors that ensure compliance with program requirements.
In view of the fact that HUD has distributed guidance adding more
traditional risk factors to its annual comparative review, GAO has deleted
that proposed recommendation from the report. Furthermore, GAO
proposed that HUD improve the Grants Management Process information
system so that field offices have a single data entry point for information
on their monitoring activities. In view of the fact that on March 29, 1999
HUD added Grants Management Process screens to allow field offices to
describe their monitoring activities, GAO has deleted that proposed
recommendation from the report. In addition, GAO added information to
the report to reflect HUD’s guidance on conducting its annual comparative
review and its plans to update the Grants Management Policy Notebook.
Where appropriate, GAO has included other technical changes to the report.
GAO’s detailed responses and HUD’s comments appear in appendix I and are
discussed in chapters 2 and 3.
Page 9 GAO/RCED-99-98 Community Development
Contents
Executive Summary 2
Chapter I 12
Four Block Grant Programs Provide Funds for Community 12
Introduction Revitalization and Aid to the Homeless
CPD’s Oversight of Grants Through the Grants Management 14
System
IDIS 19
Objectives, Scope, and Methodology 20
Chapter 2 23
CPD’s Implementation of the Grants Management System Does 24
Monitoring Under the Not Ensure That On-Site Monitoring Occurs and That the Poorest
Grants Management Performing Grantees Are Reviewed
Reviews Have Identified Significant Financial and Performance 32
System Does Not Problems at Grantees
Ensure That Grantees Little Oversight by CPD Headquarters of Field Offices’ Operations 34
Are Managing Their Conclusions 36
Recommendations to the Secretary of Housing and Urban 37
Funds Appropriately Development
to Achieve Program Agency Comments and Our Evaluation 37
Objectives
Chapter 3 39
IDIS’ Design Flaws Make the System Difficult to Use, and 39
Financial and Information Is Not Always Complete, Accurate, and Timely
Management Security Controls Do Not Provide Assurance That IDIS Is Safe 44
From Fraud and Abuse
Information System Is HUD Plans Major Changes 47
Not Providing the Conclusions 47
Information Needed Recommendations to the Secretary of Housing and Urban 48
Development
to Manage and Agency Comments and Our Evaluation 49
Monitor Grant
Programs
Appendixes Appendix I: Comments From the Department of Housing and 50
Urban Development
Appendix II: Major Contributors to This Report 81
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Contents
Figures Figure 1.1: The Grants Management System’s Seven-Step Process 17
Figure 1.2: CPD’s Management of Formula Grant Programs 20
Figure 2.1: Five Field Offices’ On-Site Monitoring of Grantees, 25
Fiscal Year 1998
Figure 2.2: Field Offices’ On-Site Monitoring of Poor Performing 26
Grantees
Abbreviations
AIDS Acquired immunodeficiency syndrome
HIV/AIDS Human immunodeficiency virus/acquired
immunodeficiency syndrome
HOME Home Investment in Affordable Housing Program
HUD Department of Housing and Urban Development
IDIS Integrated Disbursement and Information System
CPD Office of Community Planning and Development
Page 11 GAO/RCED-99-98 Community Development
Chapter I
Introduction
About one-quarter of the Department of Housing and Urban
Development’s (HUD) budget—almost $6 billion in fiscal year 1998—is
devoted to four formula block grant programs that support community
development. While those programs have different purposes, they all
provide federal funds to grantees to help finance projects and services for
local residents. The grantees include (1) 964 communities known as
entitlement communities—generally cities designated as central cities of
metropolitan statistical areas, other cities with populations of at least
50,000, and qualified urban counties with populations of at least
200,000—and (2) 48 states and some communities besides entitlement
communities whose programs are administered directly by HUD.
In 1995, HUD revamped its management of these formula block grant
programs. Instead of having a grantee develop separate plans for each
program, a grantee is now required to develop a consolidated plan that
lays out how it will use funds from the four programs for community
development. To implement the use of consolidated plans and focus on
performance monitoring, HUD instituted the Grants Management System—a
seven-step process for managing program funds and activities—which
placed greater reliance on the communities’ actions to police themselves;
it also phased in the Integrated Disbursement and Information System
(IDIS), which is a computerized reporting system for recording the
information grantees provide on their withdrawal of grant funds and their
accomplishments.
HUD’s Assistant Secretary for Community Planning and Development
Four Block Grant administers four formula block grant programs that help communities plan
Programs Provide and finance their growth and development and provide shelter and
Funds for Community services for homeless people. The four programs are the Community
Development Block Grant Program, the Home Investment in Affordable
Revitalization and Aid Housing Program (HOME), the Emergency Shelter Grant Program, and the
to the Homeless Housing Opportunities for Persons With AIDS Program. The grantees in
these programs distribute their grant funds to some 10,000 “subrecipients,”
such as nonprofit providers, while the states distribute their grants to local
governments. These subrecipients and local governments provide services
directly to the beneficiaries of the programs.
In order to participate in the four programs, grantees must meet general
and specific requirements. For instance, in order to apply for one of the
four formula grants, a grantee must develop a long-term plan, generally for
3 to 5 years, that lays out activities under all four programs. This plan must
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Chapter I
Introduction
include an assessment of needs for housing and the homeless; a housing
market analysis; a 1-year action plan; certifications of compliance with
various regulatory requirements, standards, and procedures that the
jurisdiction will use to monitor activities carried out in furtherance of the
plan; and a citizen participation and government consultation plan.
Projects and activities undertaken with program funds must meet the
specific objectives and requirements of each program.
Community Development The Community Development Block Grant Program has long been the
Block Grant Program principal federal community development program, providing funding for
metropolitan cities and urban counties and for small cities. The program
provides annual grants on a formula basis that takes into account
population, poverty, housing overcrowding, the age of the housing, and
any change in an area’s growth in comparison with that of other areas. The
activities undertaken must address at least one of three national
objectives: They must (1) benefit low- and moderate-income families,
(2) aid in the prevention or elimination of slums or blight, or (3) meet
urgent community development needs. In fiscal year 1998, the Congress
appropriated about $4.9 billion for the Community Development Block
Grant Program. This funding was subject to over $700 million in set-asides,
including ones for Indian tribes and historically black colleges.
Home Investment in The HOME Program provides federal assistance to participating
Affordable Housing jurisdictions or Indian tribes for housing rehabilitation, rental assistance,
assistance to first-time homebuyers, and new housing construction. The
HOME formula for allocating funds measures a jurisdiction’s share of the
total need for an increased supply of affordable housing.
In fiscal year 1998, the Congress appropriated about $1.5 billion for the
HOME Program—$863 million was allocated by formula to cities, urban
counties, and consortiums (contiguous units of local government), and
$575 million went to the states. The program’s funding is also subject to
several set-asides.
Emergency Shelter Grants The Emergency Shelter Grants Program is designed to supplement state,
Program local, and private efforts to provide emergency shelter assistance for the
homeless. Program funds can be used to rehabilitate or convert buildings
for use as emergency shelters for the homeless, to pay for certain
operating expenses and essential services in connection with emergency
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Chapter I
Introduction
shelters for the homeless, and to conduct activities to prevent
homelessness.
Under this program, HUD makes grants to the states, units of general local
government, and territories on the basis of the Community Development
Block Grant formula. In fiscal year 1998, the Congress appropriated
$823 million for Homeless Assistance Grants, of which $165 million was
allocated for the Emergency Shelter Grants program.
Housing Opportunities for The Housing Opportunities for Persons With AIDS Program gives states and
Persons With AIDS localities the resources and incentives to devise long-term strategies for
meeting the housing needs of low-income persons with human
immunodeficiency virus/acquired immunodeficiency syndrome (HIV/AIDS)
or related diseases.
HUD awards 90 percent of the annual appropriation by formula to eligible
metropolitan statistical areas and states. Metropolitan areas with
populations greater than 500,000 and more than 1,500 cumulative cases of
AIDS are eligible for grants; the most populous city in an eligible
metropolitan area serves as that area’s grantee. In addition, states with
more than 1,500 cumulative cases of AIDS in areas outside of eligible
metropolitan areas qualify for funds. The remaining 10 percent of the
program’s annual appropriation is set aside for grants awarded on a
competitive basis. In fiscal year 1998, the Congress appropriated
$204 million for the Housing Opportunities for Persons With AIDS Program.
HUD’s Office of Community Planning and Development (CPD) administers
CPD’s Oversight of the four formula grant programs through 42 field offices located
Grants Through the throughout the United States. These offices report directly to CPD’s Office
Grants Management of Executive Services, Field Management Division. Both headquarters and
field offices are now relying on the Grants Management System to oversee
System grantees.
Field Office Organization Each field office is managed by a director, who is responsible for ensuring
that the field office’s annual work plan is carried out. An annual work plan
is based on the field office’s annual assessment of each grantee and a
comparison of the grantees’ performances (known as an annual
comparative review). The work plan describes the actions the field office
plans to take for each grantee during the year. For example, grantees
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Chapter I
Introduction
designated as needing improvement may be scheduled for technical
assistance or on-site monitoring.
Reporting to the director are teams of CPD representatives who are
responsible for monitoring a caseload of grantees. Each team is managed
by a program manager. Several types of support staff supplement the
efforts of the CPD representatives. For example, financial analysts review,
monitor, evaluate, and provide technical advice and assistance on financial
matters concerning grant awards and grantees’ financial systems. Other
support staff include environmental, relocation and real estate, and
clerical staff.
CPD Headquarters’ The 42 field offices report directly to the Office of Executive Services,
Organization Field Management Division. The division is responsible for setting
priorities, promulgating departmental goals, providing resources, solving
problems, representing the field offices in headquarters, training, and
evaluating field offices’ performance. It operates through eight desk
officers, each of whom is responsible for a number of field
offices—including monitoring the offices’ operations, providing
assistance, and providing input to the field offices’ end-of-the-year
evaluation signed by the Director of the Office of Executive Services.
The desk officers oversee the field offices through telephone
conversations and E-mail correspondence, occasional on-site visits, and
periodic queries to the Grants Management Process information system.
This information system is a computerized management information
system that the field offices use to record their interactions with their
grantees. For example, once a CPD representative completes a review and
assessment of the grantee’s annual plan for using its formula grant funds,
the results are entered into the Grants Management Process information
system.
Grants Management In 1995, HUD introduced the Grants Management System to ensure that
System formula block grantees are achieving high performance and are in
compliance with program requirements. This system deemphasized
compliance monitoring and placed greater emphasis on (1) promoting a
more collaborative approach that includes up-front assistance to help
grantees achieve their goals and identify and solve their problems and
(2) ensuring that grantees develop systems to monitor their own
performance. Before the Grants Management System, HUD’s primary
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Chapter I
Introduction
activities in administering the block grant programs were to assist
communities in understanding program requirements and to monitor local
programs to ensure compliance with statutory and regulatory
requirements.
The Grants Management System and the information systems supporting
it—the Integrated Disbursement and Information System (IDIS) and the
Grants Management Process information system—are intended to help HUD
comply with the requirements of the Government Performance and
Results Act of 1993 (P.L. 103-62). The act requires agencies to establish
long-term general goals as well as associated annual goals. In addition,
agencies must measure their performance against the goals they have set
and report publicly on how well they are doing. The Grants Management
System is intended to target limited resources so that they can best be
used to achieve locally defined goals while also providing best practices to
serve as models to enhance and improve performance among all grantees.
As figure 1 shows, the Grants Management System is a seven-step process
of interaction between CPD and the grantees that involves (1) consulting,
(2) conducting a plan review and assessment, (3) monitoring a grantee’s
performance (performance-based program management), (4) reviewing
the grantee’s consolidated annual performance and evaluation report,
(5) conducting an annual community assessment, (6) conducting an
annual comparative review, and (7) systematically identifying and
encouraging the use of best practices. Broadly, the Grants Management
System establishes internal controls—plans, methods, and procedures
used to meet objectives—that involve monitoring and, according to GAO’s
Standards for Internal Controls in the Federal Government, must
themselves be monitored. Field offices enter the results of each of these
steps into the Grants Management Process information system.
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Figure 1.1: The Grants Management System’s Seven-Step Process
Source: CPD.
Consultation CPD uses consultation as a tool to enhance the quality and effectiveness of
a grantee’s plans and programs. These consultations are held as early as
possible in the grantee’s process for developing its next year’s planned
activities. The participants in these meetings should include the chief
elected official of the community and other stakeholders, as appropriate.
The discussions should be centered on relevant planning, performance,
and compliance issues. When possible, these discussions should be
conducted at the grantee’s offices.
Plan Review and Assessment CPD uses the grantee’s consolidated plan and annual action plan as the
basis for its program management and evaluation responsibilities. CPD’s
review and assessment focuses on the plans’ completeness; their
effectiveness as communication tools for citizens; the soundness of their
strategies and the likelihood that they will address identified needs; and
their ability to serve as the basis of future assessment and performance
evaluation. CPD has 45 days from receipt of the plans to review and
approve or disapprove them or the plans are automatically approved.
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Performance-Based Program CPD is to oversee the grantee’s activities throughout the program year
Management through performance-based management. This process includes an
assessment of the performance and overall effectiveness of the programs
implemented by the grantees as well as traditional compliance monitoring.
CPD must use a wide range of tools in evaluating a grantee’s performance.
These tools include the consolidated and action plan review and
assessment, performance data that the grantee enters into IDIS, the annual
community assessment, on-site monitoring, and consultations with
community officials and other stakeholders to define or improve a local
program.
Consolidated Annual At the end of the program year, a grantee submits a consolidated annual
Performance and Evaluation performance and evaluation report whose goal is to show what the grantee
Report has accomplished with the grant funds. The report allows CPD, local
officials, and the public to draw conclusions on grantees’ performance. A
grantee should submit this report to its CPD field office 90 days after the
end of the grantee’s program year, which varies by grantee. The report is
to cover all activities undertaken by the grantee during the program year
regardless of the fiscal year of the grant. If a grantee fails to submit the
report in a timely manner, CPD can suspend or terminate the grantee’s
funding. According to the Grants Management System Policy Notebook,
CPD’s review of the report should be completed within 60 days of receipt;
however, this time frame is not required by regulation.
Annual Community Assessment Using the consolidated annual performance evaluation report and other
available information, such as the results of monitoring activities, CPD
annually assesses each grantee’s performance to determine whether the
grantee has carried out its planning, activities, and reporting in accordance
with statutory requirements and provides the grantee with a written report
on its performance. This assessment is to begin no later than 3 months
after the end of the program year. CPD is to complete the assessment
within 60 days and provide the grantee with a letter that cites the grantee’s
accomplishments and any areas that need improvement. The grantee is
given 30 days to comment on the assessment’s findings.
Annual Comparative Review In conducting an annual comparative review, each field office evaluates its
portfolio of grantees by quality and risk and identifies grantees that it
considers to be performing exceptionally well, those that are performing
adequately, and those that need more oversight or assistance. At the
completion of this review, CPD develops a work plan for each grantee that
describes the management strategy for the grantee for the coming program
year. If the grantee has areas needing improvement, the field office will
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identify actions and strategies for addressing that problem. Actions may
include on-site monitoring, technical assistance provided by staff and
contractors, peer-to-peer assistance, and training.
Best Practices During the annual comparative review or at any time, field offices identify
best practices—systems and programs that work particularly well and that
can be used to improve the performance of other grantees. Best practices
are programs or projects, management tools, and/or techniques that fulfill
at least two of the following characteristics:
• They generate a significant positive impact on those they are intended to
serve or manage and are replicable in other areas of the country, region, or
local jurisdiction.
• They demonstrate the effective use of partnerships among government
agencies, nonprofit organizations, and/or private businesses.
• They display creativity in addressing a problem.
IDIS is a computer-based management information system that
IDIS consolidates planning and reporting processes across the four formula
grant programs. The grantees use this system to enter information on
consolidated planning, establish projects and activities to draw down
funds, and report accomplishments. The system is supposed to reduce the
grantees’ reporting burden by providing a single computer system for
obtaining funding and reporting on the use of grant funds, regardless of
the formula grant program. Moreover, the system is supposed to provide
CPD staff with real-time performance data from the grantees, such as the
number of people served, jobs created, houses rehabilitated; income
characteristics of beneficiaries; benefits provided; information to judge if
national objectives are being met; and information on funds drawn down
by the grantees. This information is needed for CPD to evaluate grantee
performance and to determine the assistance is needed.
Figure 1.2 shows CPD’s structure and information systems in managing the
four formula grant programs.
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Figure 1.2: CPD’s Management of
Formula Grant Programs
Source: GAO’s analysis of CPD data.
The former Chairman of the Subcommittee on Housing Opportunity and
Objectives, Scope, Community Development—now the Subcommittee on Housing and
and Methodology Transportation—, Senate Committee on Banking, Housing, and Urban
Affairs, and the Chairman of the Subcommittee on Housing and
Community Opportunity, House Committee on Banking and Financial
Services, asked GAO to assess whether controls are in place to ensure that
the block grant programs’ objectives are being achieved and that funds are
managed appropriately. In particular, we examined whether (1) HUD’s
on-site monitoring of grantees under the Grants Management System is
adequate and (2) the Integrated Disbursement and Information System
provides the data HUD needs to accurately assess grantees’ performance.
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Our work focused on CPD’s four formula grant programs—the Community
Development Block Grant Program, HOME Investment in Affordable
Housing Program, Housing Opportunities for Persons With AIDS Program,
and Emergency Shelter Grants Program. We evaluated IDIS operations and
the Grants Management System, CPD headquarters’ oversight of its 42 field
offices, and 5 field offices’ oversight of 11 grantees. In selecting field
offices, we considered geographic dispersion, size, grant fund allocations,
and past performance.
In addressing both questions, we examined information from a number of
sources, including relevant GAO reports, the HUD Office of the Inspector
General’s audits of CPD’s formula grant programs, and independent
contractor’s audits and studies of IDIS and CPD’s internal controls. In
addition, we interviewed key agency officials, the independent contractors
supporting IDIS and reviewing the Grants Management System, and
representatives of various grantee organizations.
In evaluating the Grants Management System, we interviewed CPD officials
at field offices located in Fort Worth, Texas; Boston, Massachusetts; Los
Angeles, California; Coral Gables, Florida; and Omaha, Nebraska. In our
analysis, we applied the relevant criteria GAO has issued on internal
controls and guidelines for evaluations and the laws, regulations, and
procedures pertaining to the four formula block grant programs. We
evaluated the Grants Management System’s design and reviewed its
implementation in each of the five field offices. Specifically, we assessed
the caseloads of each field office representative; analyzed the offices’
process for reviewing and monitoring grantees’ action plans, transactions,
and performance information; and documented the field offices’ responses
to this information.
We also visited a total of 11 grantees managed by the five field offices we
visited. These grantees were selected on the basis of their size,
performance evaluations, and proximity to the field offices. While at these
grantees, we interviewed relevant city officials and conducted limited file
reviews to determine if HUD was effectively managing these grants,
obtained the grantees’ opinions on the level of monitoring and technical
assistance provided by the CPD field office; and validated selected
information provided through IDIS. The grantees we visited include Fort
Worth, Arlington, and Dallas, Texas; Lincoln, Nebraska; Council Bluffs,
Iowa; Medford, and Lowell, Massachusetts; Inglewood, and Ontario,
California; and Miami, and Pompano Beach, Florida.
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We evaluated IDIS internal controls and conducted selective testing of IDIS
transactions. We interviewed key HUD officials both in headquarters and
the field as well as staff at the grantees we visited regarding IDIS’
functionality, training, and security. We also tested IDIS’ accuracy by
tracing financial and accomplishment data to source documents for
randomly selected activities.
Our review was conducted from May 1998 through April 1999 in
accordance with generally accepted government auditing standards.
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While the Grants Management System provides a logical, structured
approach to managing the four block grant programs, CPD’s monitoring
under the system, of which IDIS is a critical part, does not ensure that
program objectives are being met and that funds are being managed
appropriately. While the on-site monitoring of grantees is an essential tool
for making such determinations, it is all the more important because of the
shortcomings of IDIS (discussed in ch. 3) and other monitoring tools, such
as consultations, technical assistance visits and audits performed by
independent public accounting firms. For the five CPD field offices we
visited, accounting for approximately 20 percent of all formula grant funds
in fiscal year 1998 ($1.18 billion), most of the poorest performing grantees,
identified by CPD through the annual comparative review, were not
identified for on-site visits. And even when on-site visits were scheduled
for the poorest performing grantees, the visits often did not occur because
of a shift in emphasis away from intensive on-site monitoring and resource
constraints in the field offices. Furthermore, CPD headquarters has reduced
its oversight of the field offices because of a desire for a more
collaborative relationship and because of resource constraints.
Such breakdowns in monitoring make the Department vulnerable to fraud,
waste, and abuse in its formula grants programs. In our review of 11
grantees, we identified various problems related to the financial
operations of and results achieved by grantees, including vouchers
assigned to the wrong project and year and incomplete or missing
information on key data such as recipients, statements of work, and
contracts. In addition, since the Grants Management System was
introduced in 1995, HUD’s Inspector General has questioned grantees’
expenditure of about $26 million. Finally, the Inspector General and an
independent study performed in 1998 of six field offices and 11 grantees
reported that CPD’s monitoring is inadequate.
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While HUD’s Grants Management Policy Notebook emphasizes the
CPD’s Implementation importance of on-site monitoring in implementing the Grants Management
of the Grants System, stating that on-site monitoring is an essential tool for determining
Management System whether important program requirements are being met, the five field
offices we visited have generally conducted limited on-site monitoring of
Does Not Ensure That grantees and of those grantees CPD identifies as most in need of oversight
On-Site Monitoring or assistance. Furthermore, when on-site reviews occur, field offices may
not obtain the comprehensive, in-depth information they need to oversee
Occurs and That the grantees’ performance. A problem exists with the definition of poor
Poorest Performing performance because CPD has not established standard criteria for
Grantees Are determining the level of performance grantees achieve, which means that
CPD has no assurance that the grantees most at risk of failing to meet
Reviewed program requirements are consistently being identified for more intensive
review.
Field Offices Have The field offices we visited targeted about 37 percent of their grantees for
Conducted Limited On-Site on-site monitoring but visited far fewer. As figure 2.1 shows, during fiscal
Monitoring of Grantees year 1998, the five field offices identified 85 of their 228 grantees for
on-site monitoring but only conducted 33 visits—14 percent of all grantees.
and Have Not Focused on
the Poorest Performing
Grantees
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Figure 2.1: Five Field Offices’ On-Site
Monitoring of Grantees, Fiscal Year
1998
Source: GAO’s analysis of CPD’s data.
Furthermore, while the grantee evaluation performed during the annual
comparative review is intended to maximize the use of limited resources
by targeting the grantees most in need of attention, the 33 grantees visited
by the five field offices were not necessarily those CPD had determined
were the poorest performers. As figure 2.2 shows, only 38 of the 85
grantees designated for on-site monitoring were rated among the lowest
performing grantees in the annual comparative review, that is, those
needing the greatest oversight or assistance. Moreover, only 15 were
actually monitored, and the remaining 23 visits were cancelled because of
resource limitations, according to the field office directors.
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Figure 2.2: Field Offices’ On-Site Monitoring of Poor Performing Grantees
Source: GAO’s analysis of CPD’s data.
According to the CPD directors of four of the five field offices, they have
significantly reduced their on-site monitoring of grantees in recent years.2
According to monitoring information provided by the four directors,
on-site monitoring in these offices fell by about 88 percent between 1990
and 1998. Nevertheless, officials of two associations that represent
grantees—the National Community Development Association and the
National Association for County Community and Economic
Development—and several grantees we visited supported more on-site
monitoring because monitoring ensures that they are generally on the right
track. They said they want to know whether they are operating their
programs properly and to have problems corrected before they are
penalized for inadequate management. One association official said that
some grantees are becoming concerned because they have not been
monitored in years.
2
The Miami field office could not provide historical monitoring information because it was not
established until 1996.
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Infrequent on-site monitoring by CPD has occurred for two principal
reasons discussed below: (1) a shift in emphasis under the Grants
Management System and (2) significant resource reductions.
Shift in Monitoring Emphasis The Grants Management System shifted the focus of the
government/grantee relationship from one of monitoring grantee
compliance with program requirements to a more collaborative
relationship that includes up-front assistance to help grantees achieve
their objectives and identify and solve problems. In line with this
philosophy, CPD encouraged the field offices to increase the level of remote
monitoring through IDIS and other tools such as IDIS reports, consultations,
technical assistance visits, and audits performed by independent
accounting firms and reduce the level of intensive on-site monitoring. In
February 1997, we reported that of the 32 CPD directors surveyed,
41 percent said that headquarters’ emphasis on completing essential
monitoring was low, and 66 percent believed that the amount of on-site
inspections should increase.3
Significantly Reduced As the directors of the five field offices said, and as we reported in
Resources February 1997, the level of on-site monitoring is lower than it should be
principally because of a lack of staff and travel funds. Resources have
been reduced while responsibilities have increased. CPD lost almost
one-fourth of its staff—264 people—between 1992 and 1997. At the same
time, staff have had to take on new responsibilities for programs worth
billions of dollars: homelessness programs, technical assistance grants,
and Empowerment Zone and Enterprise Community grants.4 This caused
the annual grants per employee to double from about two to about four
over approximately the same period. In addition, the staff in some field
offices have to carry out administrative tasks because of administrative
staff shortages. CPD directors told us that staff reductions, combined with
workload increases, have forced them to have to make sacrifices, and they
consistently mentioned the elimination of on-site monitoring as one of
those sacrifices.
Furthermore, CPD directors told us that the Grants Management System
was not generating resource efficiencies as they had hoped. While IDIS,
along with the Grants Management Process information system, were to
3
HUD: Field Directors’ Views on Recent Management Initiatives (GAO/RCED-97-34, Feb. 12, 1997).
4
CPD oversees a number of programs designed to reduce homelessness, technical assistance grants to
help grantees correctly administer CPD programs, and the Empowerment Zone and Enterprise
Community Program, which is designed to help selected distressed communities develop
comprehensive approaches for dealing with their social and economic problems.
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foster the efficiencies of remote monitoring, IDIS requires substantial time
to learn and maintain, and the annual consultations also use time and
travel dollars, the directors reported. According to the directors, these
extra requirements make on-site monitoring more difficult.
Officials in one field office told us that the cost of travel is a major factor
in determining which grantees will receive on-site monitoring because the
field office has to cover a large geographic area. They said that the
grantees that are relatively close to the field office receive the greatest
oversight. For instance, while this field office had nominated a grantee for
a best practices award, field office staff still made weekly technical
assistance visits to that grantee because it was nearby. Yet, of the field
office’s 16 poorest performing grantees, only 3 received on-site
monitoring. In May 1997, CPD acknowledged these problems in its
Management Reform Plan, which noted the following:
“Among . . . [CPD’s] key problems are: a. Staff and travel funds are too limited to do
adequate on-site monitoring and validation of high risk activities of grantees. b. CPD
approves over 1,300 competitive grants a year and has to monitor cumulatively many
thousands of competitive grants, a workload increasingly difficult to handle with the loss of
23% of staff since 1992 and continued drop in staff under the downsizing. c. With the
approval of hundreds of economic development projects in the past several years, CPD has
insufficient staff resources in both number and expertise to monitor these programs
adequately.” 5
Despite recognition of this problem, CPD has not conducted a workforce
analysis to determine its staffing needs and accurately target its staff
resources since 1996. Furthermore, while HUD’s travel budget increased
from $15.6 million in fiscal year 1998 to $19 million for fiscal year 1999,
HUD decreased CPD’s field office travel allocation from $416,051 in 1998 to
$412,000 in 1999. Moreover, the field office travel allocation for fiscal year
1999 is over $100,000 less than it was in fiscal year 1994.
On-Site Monitoring That Is Before the Grants Management System was established, field offices used
Conducted Is Not Uniform the CPD Monitoring Handbook more universally. This handbook specified
or Comprehensive the level of monitoring warranted for high-risk grantees and the scope and
intensity of the on-site review. It indicated that on-site monitoring should
include validating reported information by reviewing case files; reviewing
financial information; spot-checking capital improvement projects; and
5
The HUD 2020 Management Reform Plan presents a fundamental management overhaul that focuses
on improving HUD’s management of its programs and staff.
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visiting sites that provide direct services to beneficiaries, such as a
homeless shelter. It also included checklists that focused on compliance
with program requirements, such as the grantee’s progress in achieving
project objectives, compliance with national objectives for the Community
Development Block Grant Program, grant administration, citizens’
participation, and property rehabilitation activities, among others. Some of
these activities were reviewed by CPD representatives, while others were
reviewed by specialists such as financial analysts. Staff had to report on
the results of the review in the form of a letter to the grantee and other
relevant officials. According to one field office director we spoke with, a
comprehensive on-site review would usually take about a week or two to
complete.
Under the Grants Management System, however, CPD has no assurance
that such comprehensive on-site monitoring will occur. The Grants
Management System Policy Notebook does not ensure that field offices
will conduct comprehensive monitoring of the grantees that they do visit
because it does not provide specific procedures that have to be carried out
during such a visit. Two field office directors and the Director of CPD’s
Field Management Division said that the principles in the monitoring
handbook still applied but that field offices are not required to follow
them. Field offices have significantly curtailed the actions they take during
on-site monitoring.
Instead, monitoring under the Grants Management System targets the
specific aspects of grants administration in which the grantee needs
improvement. For example, one field office focused its monitoring visits
only on the grantees’ monitoring of subrecipients. Of the five offices that
we visited, only one office had conducted a comprehensive on-site
monitoring of a grantee in 1998. According to the field office director, the
field office no longer routinely conducts comprehensive on-site
monitoring, but did so in this instance in response to a citizen’s allegation
of fraud in the use of federal funds.
The lack of specific monitoring guidance thus allows for significant
variation in the way HUD field offices oversee almost $6 billion in formula
grant funds. While one field office we visited focused its half-day
monitoring visits only on the grantees’ monitoring files for subrecipients,
another office conducts complete multiday reviews of one of a grantee’s
programs. In a third field office, the complete fiscal year 1998 on-site
monitoring for one grantee that receives $28 million annually in CPD
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formula allocations consisted of a one-day visit to one HOME project by a
single HUD employee, who had never before conducted a monitoring visit.
According to HUD, the Grants Management Policy Notebook will be revised
to provide detailed guidance to field offices on ensuring compliance with
program laws and regulations. This guidance is scheduled to be made final
and distributed at the end of July 1999.
Tools Other Than On-Site The directors of the five CPD field offices we visited generally agreed that
Monitoring Are Not comprehensive on-site reviews provide a higher level of assurance of
Providing Accurate and program compliance and proper use of funds than other available
tools—IDIS reports, consultations, technical assistance visits, and audits
Complete Information performed by independent public accounting firms. These other tools do
not provide the detailed information that field offices need to effectively
monitor program performance, according to the directors. As we discuss
in chapter 3, we found during our visits to field offices that grantees were
not always entering complete and accurate information into IDIS and that
the system cannot provide timely and accurate information on grantees’
performance. In addition, some CPD representatives were not using IDIS to
retrieve information on grantees’ performance. Furthermore, field offices’
consultations with grantees are primarily geared to providing local
officials with an evaluation of the grantees’ performance and to identifying
technical assistance needs and resources, rather than reviewing projects
and activities and documentation supporting those activities. Similarly,
technical assistance visits are made to provide the grantees with
information to help them operate their programs more effectively. One
director acknowledged that field office staff can make observations on
grantees’ financial and performance matters during these visits, but the
visits’ primary purpose is not monitoring. Moreover, technical assistance is
often performed by contractors who do not have a monitoring role.
Finally, according to the Director of the Field Management Division and all
five field office directors, independent public accounting audits do not
provide enough detailed program performance information.6
6
The Single Audit Act, 31 U.S.C. 7501-750, provides uniform audit requirements for all federal
assistance programs, that award funds to states, local governments, or nonprofit organizations. Rather
than being a detailed review of individual grants or programs, a single audit is an organizationwide
financial and compliance audit that focuses on accounting and administrative controls. A single audit
is designed to advise federal and grantee officials and program managers on whether an organization’s
financial statements are fairly presented and to provide reasonable assurance that federal financial
assistance programs are managed in accordance with applicable laws and regulations. It is not
intended to provide detailed performance information.
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The Grants Management The latitude allowed in evaluating the level of grantees’ performance is
System Does Not Provide another problem for monitoring under the Grants Management System.
Uniform Criteria for The field offices have considerable discretion in setting their annual work
plans—including deciding on which grantees are poor performers and
Evaluating Grantees’ what type of oversight they may need. The Grants Management Policy
Performance Notebook, which describes how to manage a grantee’s performance,
provides only general criteria for evaluating this performance. These
criteria include the adequacy of the grantee’s consolidated plan and the
grantee’s efforts to (1) address the continuing needs of the homeless
population, (2) provide affordable housing to all populations and income
groups, (3) increase economic opportunity, (4) provide a suitable living
environment for its recipients, and (5) meet program requirements. The
policy notebook leaves it to the individual field office to determine which
of these factors to weigh more heavily in targeting grantees for review. On
the basis of these criteria, the field office is to determine which grantees
are performing exceptionally well, performing adequately, or needing
more oversight or assistance.
While these criteria include an important focus on results in the
community, they do not provide assurance that field offices will
consistently emphasize the factors that will target grantees on the basis of
compliance with internal controls designed to protect against fraud or
abuse. According to two field office directors, in determining which
grantees need to be monitored more closely in the coming year, the Grants
Management System shifted the focus from the factors that could result in
the inappropriate use of federal funds to the more performance-based
factors presented in the Grants Management Policy Handbook.
Furthermore, in reviewing the Community Development Block Grant
Program, an independent accounting firm noted the need to identify at-risk
grantees by using more traditional risk factors, such as unresolved audit or
monitoring findings, the number of subgrantees and subrecipients
receiving funds, the amount of program income, the size of the grant, the
last date of monitoring, and staff turnover.7 In response to this report, on
September 29, 1998, HUD promulgated risk analysis guidance that included
most of these risk factors.
7
Soza & Company Ltd. U.S. Department of Housing and Urban Development Office of Audit
Resolution, Verification Review of Material Weakness 91-02, Community Development Block Grant
“CDBG”, March 19, 1998.
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Our visits to 11 grantees and 11 reports by HUD’s Inspector General, while
Reviews Have not generalizable to all block grant programs, identified significant
Identified Significant problems that could have been identified if field offices were conducting
Financial and comprehensive on-site monitoring. Specifically, at several grantees, we
found problems in the monitoring of subrecipients that ranged from a lack
Performance of records showing that such monitoring had been done, although the
Problems at Grantees grantees said monitoring had occurred, to an acknowledgement by one
grantee that no monitoring had occurred during the 1998 program year.
Without subrecipient monitoring, HUD has no assurance that subrecipients
are complying with program requirements and are achieving their intended
objectives.
For other grantees, in examining the project files, we found inadequate
documentation to support payments to contractors, payment vouchers
that were unrelated to the project, and a lack of documentation to justify
project overruns. For example, at one grantee, the project files were
missing so much information that we could not determine if we had
identified all of the problems. This grantee had incomplete or missing
information—on such key data as the qualifications of recipients served,
such as certifications that recipients are of low or moderate-income,
statements of work, and contracts—in the nine project files we reviewed.
Although this grantee received a monitoring visit in the 1998 program year,
the monitoring was targeted to specific program areas, and the monitoring
report did not disclose the problems we identified. For example, for one
project budgeted for $30,000, the file included two contracts indicating
that it had received $40,000 and then another $60,000. We were told that
the latter $60,000 contract was cancelled, but the file included no
documentation of this. For another project budgeted for $135,000, the file
included weekly progress reports, but payment vouchers (justifying the
payments made to contractors) and other important documents, such as a
statement of work, were missing. And for still another project, the file
indicated that the project was budgeted at $145,000 and internal
accounting records indicated that over $300,000 was spent, but neither of
these figures could be reconciled with the withdrawal of approximately
$240,000 that was recorded in IDIS. The file did not include any justification
or support for the discrepancies and the overrun. This grantee was not
alone in poorly accounting for its use of funds. For example, at another
grantee, we could not reconcile payment vouchers with project totals for a
street-paving project that cost $259,200.
Our reviews also showed problems with reporting accomplishments and
determining whether grantees were following regulations. For example, at
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another grantee, we observed the double-counting of accomplishments
from one project. In particular, the project file supported only half as
many demolitions as were reported in IDIS.
In 11 reports based on reviews of some grantees, HUD’s Inspector General
found that grantees are not complying with financial and performance
requirements and consequently has questioned the expenditure of about
$26 million in grant funds since HUD began using the Grants Management
System. For example, the Inspector General reported that a grantee had
improperly charged over $2 million in administrative costs to prior
program years. Since the costs were transferred before the end of the
program year, the grantee did not disclose these costs in its annual
performance report. Without on-site validation of the information in the
report, the CPD field office could not determine that improper transfers had
been made. According to the CPD representative who was responsible for
this grantee, the limited monitoring that was done during this period could
not have identified the conditions the Inspector General had uncovered.
In another audit, the Inspector General found significant weaknesses in a
grantee’s internal controls for its housing rehabilitation program under its
Community Development Block Grant Program. For example, the
Inspector General identified 11 houses that had recently been
rehabilitated, inspected, and approved by the grantees’ inspectors.
However, the Inspector General’s inspectors said these houses should not
have passed inspection. According to the Inspector General’s report, the
deficiencies identified by the Inspector General’s inspectors had been
allowed to go uncorrected because the grantee’s inspectors were not
specifically trained to perform inspections and were pressured to perform
cursory inspections in order to meet production goals. In addition, the
Inspector General reported that because the grantee did not have any
procedures for collecting payments on rehabilitation loans, the grantee
had a delinquent loan balance of over $100,000. Some of these loans had
been delinquent for over 8 years. The Inspector General reported that this
audit was initiated by the grantee, not CPD, following up on an audit
conducted by an independent accounting firm.
HUD’s Inspector General has also specifically faulted CPD’s monitoring of
grantees. For example, in its audit of HUD’s fiscal year 1997 financial
statement,8 the Inspector General focused on whether the Grants
Management System had been implemented and whether the system was
8
HUD’s Office of Inspector General, Financial Audits Division, Office of Audit. U.S. Department of
Housing and Urban Development Audit of Fiscal Year 1997 Financial Statements (98-FO-177-0004,
Mar. 20, 1998)
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providing adequate oversight of grantees. For some of the grantees, the
Inspector General could not determine the extent of CPD’s monitoring of
grantees’ performance because it could not find documentation of
monitoring in CPD’s files. It also found that CPD had not done annual
community assessments for some grantees. Though these required
assessments are needed in order to reach an opinion on the grantees’
performance for the year, CPD officials explained that staff shortages
resulting from HUD’s downsizing during fiscal year 1997 had prevented
them from conducting the assessments. The Inspector General concluded
that CPD could not ensure that all grantees were expending funds only on
eligible activities and individuals.
In addition, the independent accounting firm assigned to the verification
review of CPD’s actions to correct material weaknesses in the Community
Development Block Grant Program faulted CPD’s practices for monitoring
grantees. Its report indicated that four of the six field offices visited had
not conducted significant on-site monitoring visits for fiscal years 1996 and
1997.
In addition to the problems in CPD’s monitoring of grantees, CPD
Little Oversight by headquarters is not adequately monitoring the field offices’ operations.
CPD Headquarters of According to representatives of an independent accounting firm that
Field Offices’ reviewed CPD’s actions to correct material weaknesses in the Community
Development Block Grant Program (which represents almost
Operations three-quarters of the funding for the four block grant programs examined),
CPD headquarters’ oversight of the field offices is almost nonexistent. The
March 1998 report states the following:
“CPD had conducted Field Office Reviews in the past, however these reviews have been
discontinued. We were unable to identify any procedures being performed by Headquarters
that would be adequate for evaluating the quality and sufficiency of procedures being
applied by the Field Offices.”
In addition, the representatives of the accounting firm said that the lack of
headquarters oversight represents a material weakness in internal
controls. The report recommended that CPD headquarters design a
methodology for determining the adequacy of field offices’
compliance-monitoring procedures. HUD is still reviewing the report to
determine how it will respond to the recommendations.
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Headquarters staff infrequently visit the 42 field offices—making fewer
than five visits in the last 2 years—according to the Director of the Field
Management Division. When they do visit, headquarters staff do not have
to formally report their findings. These limited visits to field offices reflect
a change in headquarters’ oversight in recent years. One desk officer told
us that headquarters had moved away from field office monitoring in an
attempt to improve relationships with the field offices—headquarters
believed that these visits antagonized the field offices. However, he
believed that monitoring visits helped bring headquarters closer to the
problems and realities that the field offices faced. In the past, he
explained, these visits always generated findings, and the field offices
welcomed the feedback and suggestions for improvement that resulted.
But now, he stated, he does not have enough information to assess the
field offices’ performance.
In addition, the desk officers’ primary monitoring tool—the Grants
Management Process information system—yields incomplete and
inconsistent data. Consequently, headquarters staff do not know if field
offices are fulfilling their program responsibilities. Our review of a Grant
Management Process report on the field offices’ compliance with the time
requirement for approving or disapproving grantees’ annual action plans
showed that the field offices are interpreting the requirement differently
and consequently entering different, sometimes misleading, approval dates
into the system.9 For example, one field office we visited believed that the
approval date was the day the CPD representative approved the plan;
another, that it was the date the field office director approved the plan;
and a third, that it was the date the local Congressman notified the grantee
that the grant had been approved. Moreover, the desk officer responsible
for one of these offices could not explain an apparently significant number
of late approvals. However, in our visit to this field office, we learned that,
for many of the plans reviewed, field office staff had either incorrectly
entered the data or had found deficiencies in the plans but failed to reject
them while they waited a resolution of the deficiencies. On-site
monitoring, or even more questioning of the field offices, would have
identified this problem and allowed the headquarters staff to resolve it.
Finally, while the Grant Management Process’s information system is
supposed to be the headquarters staff’s principal monitoring tool, it has
not been useful for recording information about field offices’ monitoring
of grantees. At the time of our review, it did not contain a clear data entry
9
Field offices are required to review and approve or disapprove grantees’ annual action plans within 45
days after receiving the plan. If the field office does not act on the plan within 45 days, the plan is
automatically approved.
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point for field offices to record the results of their monitoring activities in
the database. Therefore, field offices entered these results in different
locations in the system. In order to determine where field offices were
recording this information, HUD hired a contractor to peruse the system
and identify all recorded information that appeared to be related to
monitoring. The contractor’s report—covering the third and fourth
quarters of fiscal year 1997—showed that the field offices were entering
monitoring data in three of the system’s eight data entry points, and no
monitoring information was entered for more than 75 percent of the
grantees that were scheduled for on-site monitoring. Without a specific
area in which field offices can record monitoring activities, headquarters
staff cannot be assured that they have access to all pertinent monitoring
information to oversee field offices’ operations.
We were told by HUD that a process for tracking on-site monitoring
activities was implemented. This includes the addition of Grants
Management Process screens to allow field offices to describe their on-site
monitoring activities in terms of the program monitored, program issues
covered, the number of days spent with the grantee, issues identified and
sanctions imposed. According to HUD, this addition to the system was
implemented on March 29, 1999.
As it is currently implemented, CPD’s Grants Management System provides
Conclusions little assurance that four block grant programs, funded at nearly $6 billion
annually, are meeting their objectives and that the funds are being
managed appropriately. While the Grants Management System’s approach
to monitoring seems logical, it has not been effective. The field offices we
visited are conducting limited on-site monitoring of grantees, although
such monitoring is all the more important because of the shortcomings of
IDIS. And when on-site monitoring does occur, it does not focus on the
grantees who are the poorest performers, and it is not uniform or
comprehensive. These problems are caused in part by a lack of uniform
criteria on how to assess the level of performance for each grantee and the
lack of specificity in the broad criteria that do exist to determine grantees’
compliance with program requirements, although such requirements are
intended to encourage the safeguarding of funds. According to the
directors of the field offices, the level of on-site monitoring is also lower
because of a combination of a lack of staff resources and travel funds and
increased responsibilities.
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While we found these problems with field offices’ monitoring of grantees,
we also found that the headquarters staff’s oversight of the field offices
was problematic. Headquarters staff rarely visit the field offices, and while
the Grants Management Process information system is intended to be
headquarters’ staff primary tool to oversee the field offices’ monitoring of
grantees, at the time of our review, the information system did not contain
a specific data entry point for field offices to enter data on their
monitoring activities.
In all, HUD has no assurance that program requirements are being fulfilled.
These requirements are critical to its goal of restoring the public trust in
its management of billions of dollars in formula grant funds. Until HUD
strengthens its monitoring of the financial operations of and results
achieved by program grantees and its field office operations, the integrity
of its formula grant programs is at risk.
In order to ensure that the Grants Management System identifies problems
Recommendations to in achieving program objectives and safeguarding grant funds and protects
the Secretary of the integrity of the block grant programs, we recommend that Secretary of
Housing and Urban Housing and Urban Development direct the Assistant Secretary for
Community Planning and Development to take the following actions to
Development improve oversight by field offices and headquarters:
• Emphasize the importance of on-site monitoring by specifying the level of
grantee performance that requires on-site monitoring and the steps that
should be taken in conducting such monitoring.
• Conduct analyses to determine the staffing and travel funds that may be
required to better support the monitoring of grantees and direct available
resources to the field offices as needed.
• Direct desk officers within the Office of Community Planning and
Development at headquarters to visit their field offices to better assess
how well the field offices are monitoring their grantees, to determine what
problems the field offices are experiencing, and to provide technical
assistance.
• Improve the Grants Management Process information system by providing
guidance to the field offices to ensure that they are entering information
consistently.
While HUD did not comment on our recommendations, it commented that
Agency Comments our report did not recognize its recent improvements to internal controls
and Our Evaluation
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and that our report focused too much on on-site monitoring. Specifically, it
commented that its revamped approach to grants management ensures
basic program compliance through a continuing, on-going process that
includes on-site monitoring along with other elements. HUD commented
that the majority of its monitoring activities can be done remotely,
including review of key documents, the high risk assessment process, the
grantee consultation, and the effective use of the Grants Management
Process information system and IDIS. HUD also stated that it conducts
on-site monitoring when conditions require it. Furthermore, HUD
commented that it has distributed guidance adding more traditional risk
factors to its annual comparative review and is in the process of updating
its Grants Management Policy Notebook and Grants Management Process
information system to better account for on-site monitoring.
We disagree that the majority of monitoring activities can be done
remotely. Our report shows that the tools other than on-site monitoring
are not, at this time, providing the accurate and complete information HUD
needs to effectively monitor program performance. We believe the
questionable quality of the data from remote monitoring sources such as
IDIS increases the need for on-site monitoring at this time. Additionally, for
the field offices we visited, we found that HUD did not conduct on-site
visits to many of the grantees it regarded as the poorest performers in
1998. Consequently, we continue to believe that HUD’s approach to
managing the programs, as implemented, provides little assurance that the
four grant programs are meeting their objectives and that the funds are
being managed appropriately.
In a draft of this report, we proposed that HUD provide clearer and more
detailed guidance on the factors that should be considered in evaluating
grantee performance, with a heavier emphasis on the factors that ensure
compliance with program requirements. In view of the fact that HUD has
distributed guidance adding more traditional risk factors to its annual
comparative review, we deleted our proposed recommendation from the
report. Furthermore, GAO proposed that HUD improve the Grants
Management Process information system so that field offices have a single
data entry point for information on their monitoring activities. In view of
the fact that on March 29, 1999 HUD added Grants Management Process
screens to allow field offices to describe their monitoring activities, GAO
has deleted that proposed recommendation from the report. In addition,
we added information to our report to reflect HUD’s new guidance on
conducting its annual comparative review and its plans to update the
Grants Management Policy Notebook.
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CPD’s chief monitoring tool for the Grants Management System—the
Integrated Disbursement and Information System (IDIS)—does not produce
the complete, accurate, and timely information that the Department
should obtain from a computerized database to effectively manage and
monitor almost $6 billion in block grants. The first of nine new standard
integrated systems deployed by HUD to manage and monitor the programs,
IDIS has major design flaws that make it difficult for grantees to enter
information accurately and for field office officials and grantees to use the
information to monitor performance.10 Furthermore, CPD cannot ensure
that IDIS is safe from fraud and abuse because it has not put into place the
security controls needed to safeguard the formula block grant funds. CPD
has not developed a security plan to control and monitor access to the
system to minimize opportunities for unauthorized or inappropriate
transactions. In addition, CPD has not ensured that the security officer in
charge of the system has clearly defined duties and the technical expertise
and staff needed to oversee the system. HUD is now developing an
agencywide information system that manages all 51 grant programs for the
agency, and it plans to use IDIS, along with a grants management system
being developed by the Department of Health and Human Services, as the
basis for the new system.
Although IDIS was designed to provide CPD with accurate, complete, and
IDIS’ Design Flaws timely information on grantees’ expenditures and program performance,
Make the System these goals are not being achieved because of four significant problems.
Difficult to Use, and Specifically, (1) the process for establishing and maintaining grant activity
information is time-consuming and cumbersome and provides ample
Information Is Not opportunity for major data entry problems, (2) correcting major data entry
Always Complete, problems in IDIS is difficult, (3) IDIS does not readily enable grantees to
accurately report income generated by grant-funded revolving funds
Accurate, and Timely (program income), and (4) grantees find it difficult to produce
comprehensive and timely reports using IDIS.
10
In 1991, HUD initiated the Financial Systems Integration effort to develop and deploy an integrated
financial and management information system that would provide timely and accurate information to
managers and enable HUD to properly manage its financial resources. IDIS is 1 of 9 standard
integrated systems approved under the system integration effort that would replace about 100 financial
and mixed systems. See, HUD Information Systems: Improved Management Practices Needed to
Control Integration Cost and Schedule (GAO/AIMD-99-25, Dec. 18, 1998).
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IDIS’ Design Makes IDIS information is critically important in managing and monitoring
Establishing and grantees’ performance given CPD’s emphasis on remote monitoring (as
Maintaining Project and discussed in ch. 2). Nevertheless, the system is so cumbersome that
grantees, even though trained on IDIS, find it difficult to use to set up
Activity Accounts project and activity accounts and to maintain those accounts. For most of
Unnecessarily Difficult the grantees we visited, grantees had to enter data two or more times,
found accessing and using IDIS to be time consuming, and had to work
through a complicated series of steps to enter or retrieve information.
To set up project and activity accounts, grantees have to enter much of the
same information into two separate HUD information systems—IDIS and
HUD’s Community 2020 system11 (or its precursor, Consolidated Planning
Software). These systems are not automatically linked so that entering
data into one system would automatically update both systems. In addition
to the errors that grantees could make simply because they have to enter
the data twice, other types of errors could occur that reduce the quality of
the information produced by these systems. For example, one grantee we
visited numbered projects differently between the two systems;
consequently, it was difficult to compare the grantees’ project plan with
the actual use of grant funds. While this initial set of double data entries is
time-consuming and cumbersome, IDIS’ design provides yet another
opportunity for redundancy. For example, for some projects grantees must
enter nearly exactly the same information a third time to describe the
projects’ activity. In one field office, the IDIS focal point told us that for
98 percent of the office’s projects, data had to be entered three times.
Redundant data entry problems also occurred for most of the grantees we
visited because they must enter activity information into their own
automated accounting systems, as well as HUD’s systems, to comply with
their city’s requirements. At the time of our review, CPD had not developed
a reliable method to electronically transfer data between grantees’ systems
and IDIS. This problem is especially troublesome for states that must enter
data for all small cities under their program. For example, Texas—which
at the time of our review had not yet started using IDIS—has the largest
state community development program—287 subrecipient cities for which
it must enter data. According to HUD, as of mid-February 1999, grantees
had access to a batch file transfer process, referred to as Electronic Data
11
HUD’s Community 2020 software contains information on HUD projects, such as housing and
community development projects; funding sources; performance indicators; and neighborhood
locations. It combines this information with U.S. Bureau of the Census’ geographic and demographic
information to provide a means for community constituents to understand where and how HUD
resources are being spent.
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Interchange, which allows grantees to automatically extract data from
their own information systems and pass it to IDIS.
Another difficulty for grantees is simply the amount of time it can take to
access and use IDIS. Each time grantees enter information into IDIS, they
use their desktop computers to link to a communications system, dial into
IDIS, and enter a user identification number and password to obtain access
to IDIS at authorized levels. We observed that it took up to 40 minutes to
obtain access to IDIS. Remaining connected to IDIS is also difficult. One
grantee estimates that it loses its connection to IDIS prematurely 50 percent
of the time.
Once they have obtained access, IDIS’ design forces grantees to work
through a complicated series of steps to enter or retrieve information. The
grantees must use designated function keys on the computer keyboard to
take required actions at various points in this process, but the meaning of
the function keys sometimes changes from screen to screen, causing some
confusion and missteps for the grantees and prolonging the time it takes to
enter data. In addition, a grantee must work through and exit two separate
series of screens in order to enter both financial and performance data for
the same activity.
Opportunities for When grantees enter incorrect data, IDIS does not easily allow them to
Significant Data Entry rectify the errors. Five of the 11 grantees we visited reported having
Errors Exist, and multiple, significant errors in IDIS data entries that they could not readily
correct. To address these problems, the IDIS technical assistance staff
Corrections Are Not instructed grantees to open accounts for nonexistent activities (“dummy
Always Possible accounts”) in some instances, which in effect reverse the incorrect data. In
one case, a grantee had incorrectly entered program income funds and had
to open multiple dummy activity accounts and charge false amounts
against them to rectify its error. Some grantees we spoke to were reluctant
to create dummy accounts because these accounts would appear
inaccurate or fraudulent to outside observers.
Some of these problems were so severe that they made CPD’s monitoring
activities through IDIS impossible. For example, one grantee had
incorrectly entered all of its 1997 program year activities as occurring in
the 1996 program year, thereby mixing activities for both years. To further
complicate matters, this grantee had not expended all grant funds for 1996.
As a result, CPD field and headquarters officials could not determine the
amount of funds drawn down or the performance of program activities for
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either year without actually auditing the grantee’s documents. We brought
this matter to CPD’s and the grantee’s attention in October 1998, and as of
January 1999, it had still not been resolved.
At 8 of the 11 grantees we visited, we compared data shown in IDIS with
the information in the grantee’s files on the same activities. Although we
only looked at a small number of randomly selected activities, we found a
wide variety of significant data problems, ranging from a complete lack of
performance data at one grantee to double-counting of accomplishments
at another. For example, one grantee set up an activity to cover five types
of services for senior citizens, ranging from home maintenance to
transportation to a recreational center. The grantee then lumped all
accomplishment data for these widely varying services together as one
total number of elderly people served, even though individuals might
participate in more than one of the services or be multiple users of the
same service. These types of problems would not only make reports on
individual grantees inaccurate but also make reports that combined data
at a regional or national level meaningless or misleading.
IDIS’ Flaws Preclude the In addition to its overall design problems, IDIS also does not enable
Tracking of Program grantees to link program income—income produced by projects they have
Income From Revolving funded or repayments into revolving loan accounts—to the activity that
generated it, such as economic development loans.
Funds
HUD has instructed formula grantees not to enter program income from
revolving fund programs into IDIS when they are received, as is done with
other types of program income. This is because the design of IDIS does not
allow grantees to segregate revolving fund income from other types of
program income. IDIS operates on the assumption that all program income
is depleted before grant funds are used, regardless of the type of grant
activity being funded. Handling program revenues in this manner does not
create a problem unless the income is associated with a revolving fund.
However, CPD regulations provide grantees with specific permission to
reserve program income from revolving fund programs for re-use
exclusively in the revolving fund. According to a HUD official, 3,230
revolving funds were created in the Community Development Block Grant
Program in 1994.12
12
The last year for which HUD could provide a complete number of revolving funds for the Community
Development Block Grant Program was 1994. Twenty-one percent of the data for 1995 was missing.
Subsequent years’ data are stored in IDIS, and HUD officials have not yet determined how to aggregate
the data on revolving funds.
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To ensure that the program income from revolving funds is recycled into
the revolving fund, HUD instructs grantees to only enter the income in IDIS
at the moment they redistribute the money. However, HUD’s recommended
remedy is flawed. It requires grantees to keep two sets of books: the actual
amount of the revolving fund and the amount entered into IDIS. Entering
program income only when it is needed for another loan shields the true
amount from CPD representatives that monitor the project remotely
through IDIS. It also makes it very difficult to ensure that the grantee is
meeting its regulatory requirements. For example, because CPD cannot use
IDIS to determine how much program income is being generated from
revolving funds and therefore what a grantee’s total program income is,
CPD cannot use IDIS to determine if a grantee is meeting a requirement to
spend grant money in a timely manner. In addition, interest produced by
revolving funds should not be recycled into the revolving fund for future
use but should instead be returned to CPD, which is responsible for
overseeing interest repayments—and forwarding the interest to the U.S.
Treasury. Given the lack of information about revolving fund balances in
IDIS, CPD will have trouble determining if a grantee is repaying interest as
required. One regional CPD office, for example, received large interest
repayment checks that resulted from revolving fund balances, but the
office had not expected these repayments because it had been unaware of
the balances. One grantee sent a check for $10,728.03 for interest earned
by a revolving fund balance during a 13-month period.
IDIS Does Not Provide While IDIS was intended to allow CPD to track grantees’ performance on a
Timely and Accurate real-time basis, it does not do so for several reasons. First, a grantee can
Information and Makes It withdraw all funds for an activity without entering any performance
information for that activity, as was often the case with the grantees we
Difficult to Produce visited. Most did not enter any performance data until the end of the
Reports on Grantees’ Use program year, when such data were required to complete annual reports.
of Funds and Performance Second, three grantees that did try to enter performance data were
hindered from doing so because IDIS requires grantees to enter financial
and performance data separately. Third, even when grantees enter
information more frequently, the information may not be useful for
tracking performance because IDIS does not identify when the performance
data were entered. IDIS has only one entry field for entering performance
data for the year, so that additional data entries erase previous entries.
In addition to these overall problems, IDIS does not enable grantees to
always record exact information on the outcomes of activities.
Specifically, IDIS provides 12 choices for describing benefits, such as the
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number of youth, households, or businesses benefiting from projects.
However, this list is not comprehensive enough to cover the wide range of
benefits that occur in program activities. For example, one grantee had
demolished four blighted buildings and to record this information in IDIS
had to describe the work as four “public facilities” because there was no
better option. At the field office level, then, real-time inquiries to IDIS for
information on grantees’ performance are unreliable.
Equally important, creating reports at the end of the program year or at
any time is difficult. To create and print a report, the user—either the
grantee or field office staff—must work through a series of IDIS
screens—as many as 70 at one field office we visited—to begin to create a
report. Problems can occur during this process. For example, at one field
office, the staff could not produce any of the reports we had requested for
3 days because the IDIS software for producing reports was not
functioning. In another field office, the staff could create reports for only
one grantee—the first on the list of choices—and it took 24 hours to
correct the problem. Furthermore, IDIS’ error messages can be difficult to
decipher, making the task of fixing the problem even more
time-consuming. Once the report is produced in IDIS’ mainframe computer,
the user still has to transfer it to a desktop computer and edit it before it
can be printed. Because of these difficulties, many of the grantees we
visited did not produce any more reports from IDIS than were necessary for
the end of program year reporting to HUD. In addition, at the time of our
review, CPD had removed the function for the consolidated annual
performance and evaluation report—a report all grantees must submit to
HUD at the end of the program year—because IDIS was generating reports
with errors. For example, we found that one grantee had entered correct
information into IDIS, but the system produced a report with incorrect
information. Besides reporting to HUD, grantees use the end of the year
report to communicate information about the use of block grant funds to
their citizens. This problem also frustrated the ability of CPD field office
staff to provide headquarters with some progress reports. In January 1999,
HUD was still attempting to correct the reporting capability within IDIS.
Although grantees use IDIS to initiate the transfer of approximately
Security Controls Do $6 billion a year in grant funds, CPD has not established a secure method
Not Provide for setting up and maintaining access rights for using IDIS. While HUD
Assurance That IDIS cannot select which grantee staff should have access rights—that is the
grantee’s responsibility—it can take actions to ensure that designated
Is Safe From Fraud grantee staff have appropriate levels of access and that staff who leave the
and Abuse grantee’s employment do not retain access. To provide security against the
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inappropriate use of funds, for example, grantee staff should have limited,
or segregated, access to the computer system.13 In such a case, the
individual who could establish activity accounts would not also be able to
approve the withdrawal of funds for those activities. However, HUD has not
taken these actions to safeguard federal grants, either at headquarters or
in the field offices.
Furthermore, according to the HUD official responsible for IDIS security, at
a basic level the staff resources devoted to this task are strained. He
explained that the thousands of requests for new user accounts,
reinstatement of expired user accounts, and revocation of accounts are
handled only by himself, an assistant, and one contract employee. As a
result, assigning access rights to a new user takes a month or more and
there are no staff to catalogue the forms requesting access, making it
difficult to review original access rights or retrieve forms when necessary.
Additionally, neither the security official nor his staff review these
requests for appropriateness, to determine whether the requested access
rights are necessary to perform the duties assigned to the user or whether
access rights ensure segregation of tasks such as setting up activities and
approval of drawdowns. Instead, their main function has been to assign
access rights to IDIS or to reinstate rights when passwords have expired.
Even when notified by grantees that IDIS access rights should be revoked
because the person with those rights is no longer employed by the grantee,
the security official told us that removing the person’s rights is not a high
priority. Once IDIS accounts have been established, grantees have the
authority to change access levels for their staff without any level of
oversight by CPD. At the time of our review, CPD did not periodically
produce any reports for the grantees’ IDIS focal points or field office staff
that showed the current access rights of the grantees’ staff.
Not surprisingly, given this absence of oversight, we found multiple
problems with access rights at five of the eight grantees with whom we
discussed access rights. Specifically:
• Duties among authorized users were not adequately segregated at three of
the grantees, so these users could both set up activity accounts and draw
13
According to GAO Internal Control: Standards for Internal Control in the Federal Government
Exposure Draft (GAO/AIMD-98-21.3.1), page 21, “Key duties and responsibilities should be divided or
segregated among different people to reduce the risk of error or fraud. This should include separating
the responsibilities for authorizing transactions, processing and recording them, reviewing the
transactions, and handling the related assets. To reduce the risk of error, waste, or fraud or to reduce
the risk of their going undetected, no one individual should control all key aspects of a transaction or
event.”
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down funds for those activities. Consequently, one individual could
control key aspects of grant funding, increasing the opportunities for
undetected error or fraud.
• IDIS user accounts for terminated employees or those on extended leave
had not been revoked at two grantees. Furthermore, at one grantee, the
terminated former IDIS system administrator continued to have all rights to
the system, including the right to change access rights for other users.
• HUD had erroneously assigned three individuals who had never been
employees of one grantee a variety of access rights to the grantee’s data. In
combination, the access rights for these individuals would have allowed
them to set up activities as well as approve and draw funds.
• Accounts were shared or used by individuals other than the authorized
individual at two grantees.
We also found a key control—passwords that cannot be easily
replicated—was not in place to ensure that access to grantees’ IDIS
resources is restricted to authorized users. Authorized access rights are
circumvented when an authorized user’s account is used by another
individual. We found that the combination of user account identifications
and passwords to gain access to IDIS could be easily duplicated by
knowledgeable users, making it hard to detect error, fraud, and
abuse—including malicious tampering.
The security official’s lack of basic knowledge about computer security
generally, and security for IDIS in particular, presents another problem. The
security officer told us that, although he is familiar with networks and
desktop computers, his background does not include any security work,
and he has not had any training in security methods for information
systems since becoming a security officer for IDIS. He also does not have a
working knowledge of the security software that contractors use to grant
access and therefore cannot properly oversee them. Moreover, it is unclear
whether CPD expects this official to oversee the contractor staff and what
the scope of his duties should be in general. The officer could not provide
us with a clearly defined position description that included his specific IDIS
duties. Finally, he explained he views himself more as an “access
facilitator” than a security person.
HUD’s Inspector General’s report on HUD’s fiscal year 1998 consolidated
financial statements also noted the need to improve IDIS’ security. The HUD
Inspector General expressed concern that until the software for access
controls is fully implemented, the mainframe system on which IDIS resides
will not be protected against accidental or intentional damage. The
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Inspector General also reported that there is no consistent method of
controlling changes in HUD’s applications system software, of which IDIS is
a part. This creates an unnecessary risk to the software integrity of HUD’s
mainframe application systems, according to HUD’s Inspector General.
HUD officials told us they are in the process of developing a new
HUD Plans Major Department-wide information system that manages all of its 51 grant
Changes programs. In September 1998, HUD completed a feasibility study on using
existing information systems, such as IDIS, as the basis for that system. The
study, performed by two HUD officials and a group of contractors, included
interviews with a variety of HUD officials and other federal government
officials, but none with users of IDIS. The study recommended that HUD
develop a new system, called the Departmental Grants Management
System, modeled on IDIS and the Grants Administration Tracking and
Evaluation System, a grants management system being developed by the
Department of Health and Human Services. The Grants Administration
Tracking and Evaluation System, which uses a Windows environment,
would provide the user interface for the Departmental Grants Management
System.14 IDIS, converted for use in the new environment, would be used as
the basis for withdrawing grant funds and reporting performance.
On the basis of this recommendation, HUD is proceeding with development
of the Departmental Grants Management System, which will rely on
Windows and therefore be more user-friendly than the system we
reviewed. In November 1998, HUD informed us that it is moving forward
with the project, and HUD plans to have a pilot test of the converted IDIS in
September 1999.
With billions of dollars and the needs of millions of people at stake in the
Conclusions formula grant programs, HUD has recognized that it needs effective systems
for overseeing the handling of program funds and the achievement of
program objectives. While we agree that a tool providing timely and
accurate data about grantees’ financial activities and performance would
be greatly beneficial in overseeing the grant programs, the current system,
IDIS, is not capable of serving as such a tool. IDIS has not provided the
complete, accurate, and timely information field offices need for such
monitoring. IDIS’ design makes grantees’ efforts unnecessarily difficult;
affords multiple opportunities for incorrect data entry that grantees
cannot then readily rectify; does not provide grantees with a
14
The current version of IDIS does not use Windows.
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straightforward method for managing program income from revolving
funds, which results in an inaccurate portrayal of grantees’ financial
activities; and does not require grantees to provide performance
information when they draw down funds. In addition, without adequate
security controls to prevent unauthorized access to the system, CPD cannot
ensure that information in the system is reliable and that funds are
safeguarded.
Although HUD is in the process of developing the Departmental Grants
Management System, it plans to convert IDIS and use it as a basis for the
new system, which is to be used by all 51 of HUD’s grant programs. We
agree that a more user-friendly system would be an improvement; but
given the extent and nature of problems with IDIS, we question the use of
IDIS as a model for the Department-wide system. To address the problems
we identified, IDIS will need to be modified extensively or replaced,
whichever is more cost effective. Of immediate concern, IDIS is not secure,
and while it continues to be insecure, federal funds will not be protected
appropriately.
Because IDIS has not proven to be a useful tool in managing grantees, we
Recommendations to recommend that the Secretary of Housing and Urban Development direct
the Secretary of the Assistant Secretary for Community Planning and Development to
Housing and Urban consider whether it is more cost-effective to modify IDIS or replace it. After
this determination is made and before IDIS is used as the base for
Development developing the new grants management information system for all of HUD’s
51 grant programs, the problems we identified with IDIS should be
corrected. HUD should ensure that the new system does not require
redundant data entry, reduces the time needed to enter information,
readily allows timely corrections of data, provides a straightforward
method of accounting for program income from revolving funds, provides
timely and accurate information on grantees’ performance, and readily
produces reports.
We also recommend that the Secretary—regardless of the decision on the
future of IDIS—immediately take steps to ensure that access to IDIS is
limited to authorized users and that those users have access levels
appropriate to the duties they perform. Steps should also be taken to
ensure that the security officer for IDIS is fully aware of the responsibilities
that must be carried out and has the appropriate training and staff for
those responsibilities.
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While HUD did not comment on our recommendations, it commented that
Agency Comments our assessment of IDIS fails to consider recent efforts to improve IDIS. HUD
and Our Evaluation commented that several of the weaknesses we identified did not take into
account compensating factors. For instance, HUD commented that our
assessment of IDIS’ inability to accurately track program income from
revolving funds did not account for the quarterly Federal Cash Transaction
Report (SF 272), which includes information on program income.
Similarly, HUD commented that limitations in IDIS security are less
important because accounts automatically expire after a period of nonuse.
For other weaknesses we identified, HUD pointed out recent or planned
changes to IDIS that it believed will correct the problems we identified.
We continue to believe that IDIS’ untimely, inaccurate, and incomplete data,
as well as its inability to track program income, hinder HUD’s ability to
remotely monitor its grantees. While the Federal Transaction Report
provides quarterly information on program income, as does IDIS, that
information can be used only to track program income from nonrevolving
funds. Furthermore, HUD is right that automatic account expirations
resulting from nonuse have a security benefit, but the system is still
vulnerable to unauthorized access until the account expires, and the
account will not expire if someone continues to access the system
inappropriately. We believe that HUD’s recent and planned changes could,
if properly implemented, improve the integrity of IDIS. Training the IDIS
security officer and providing periodic reports to field offices that show
the current access rights of the grantees’ staff will improve security.
Additionally, the data quality review effort could improve the quality of the
data currently in IDIS, but future data quality may be impaired by the
unresolved system design problems we noted. We also believe that the
numerous additional problems in usability, accuracy, and security detailed
in our report still compromise HUD’s ability to ensure the integrity of the
four formula block grant programs. Therefore, we did not make any
changes to the recommendations.
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Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.
See comment 1.
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Now on p. 23.
See comment 2.
See comment 3.
See comment 4.
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See comment 5.
Now on p. 24.
See comment 6.
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Now on p. 24.
See comment 7.
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Now on p. 27.
Now on p. 27.
See comment 8.
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Now on p. 28.
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See comment 9.
See comment 10.
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See comment 11.
See comment 12.
Now on p. 30.
See comment 13.
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Now on p. 31.
See comment 14.
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Now on p. 32.
See comment 15.
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Now on p. 34.
See comment 16.
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Now on p. 39.
See comment 17.
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See comment 18.
Now on p. 40.
See comment 19.
Now on p. 40.
See comment 20.
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Now on p. 5.
See comment 21.
See comment 22.
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Now on p. 6.
See comment 23.
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Now on p. 6.
See comment 24.
p. 6.
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Now on p. 6.
See comment 25.
Now on p. 6.
Now on p. 39.
Now on p. 44.
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See comment 26.
Now on p. 45.
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See comment 27.
Now on p. 45.
Now on p. 45.
See comment 27.
Now on p. 46.
See comment 28.
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Now on p. 46.
Now on p. 46.
Now on p.46.
See comment 29.
Now on p. 46.
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See comment 30.
Now on p. 5.
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The following are GAO’s comments on the Department of Housing and
Urban Development’s letter dated March 26, 1999.
1. Our report recognizes that HUD has undertaken important changes to
GAO’s Comments improve program management and accountability. It notes, among other
things, that HUD has revamped its approach to managing the four formula
block grant programs by requiring grantees to develop a consolidated plan
that lays out how they will use all four programs, changed its monitoring
of grantees to reflect a collaborative relationship, and developed the
Integrated Disbursement and Information System (IDIS) so that grantees
could, among other things, enter information describing their planning and
projects and draw federal funds. Our report also concludes that HUD’s
revamped system provides a logical, structured approach to managing the
formula grant programs and that HUD has recognized the need for effective
systems for overseeing the handling of program funds and the
achievement of program objectives. In addition, we added to our report a
description of management improvements made to the program. These
were reported to us by HUD after we had gathered information for this
report and after HUD had distributed additional instructions for
incorporating more traditional risk elements into the field offices’ annual
comparative review process. We agree that HUD has taken a more ongoing,
continuous approach to monitoring grantees. We also believe that this
approach can provide useful insights into the problems and achievements
of program grantees. However, we question whether approaches other
than significant levels of on-site monitoring of grantees can, at this time,
ensure that program objectives are being met and that funds are being
managed appropriately given the shortcomings of IDIS and other
monitoring tools such as consultations, technical assistance visits, and
audits performed by independent public accounting firms. Moreover,
several grantees we visited and officials of two associations that represent
grantees—the National Community Development Association and the
National Association for County Community and Economic
Development—supported more on-site monitoring because monitoring
ensures that they are generally on the right track in implementing the
program. This is not to say that on-site visits should be made to every
grantee each year; but rather, we believe periodic visits to grantees
needing improvements are essential.
2. We do not believe that the other steps in the Grants Management System
provide the same level of assurance as on-site monitoring that grantees are
managing their funds appropriately to achieve program objectives. While
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consultations provide a forum for discussing how well the grantee
performed during the preceding program year and areas for improvement
that should be factored into the next year’s operations, they are not
intended to be a substitute for on-site monitoring. This is because
consultations sometimes involve a discussion between HUD and senior
program and elected officials and sometimes are handled over the
telephone. They provide no assurance that a grantee is meeting program
requirements because HUD does not review the grantee’s files or visit
projects or subrecipients to determine compliance with program
requirements. In fact, the consultation is usually based on the results of
other monitoring efforts, such as on-site monitoring. During the
consolidated plan review and assessment, HUD primarily reviews the plan
for completeness, acceptability, and its usefulness as a future assessment
tool. HUD does not review the individual projects and activities to
determine whether they qualify for grant funding. In addition, our report
mentions that other monitoring tools—such as IDIS reports, technical
assistance visits, and audits by independent public accounting firms—do
not provide the same level of assurance of program compliance and the
proper use of federal funds as does on-site monitoring. Finally, the other
stages of the Grants Management System—such as the annual community
assessment, the annual comparative review, and best practices—are
generally done at the end of the year and depend on results of on-site as
well as other forms of monitoring.
3. The report does not state that the Grants Management System was
intended to obviate the need for on-site monitoring. It states that the
Grants Management System deemphasized compliance monitoring and
promoted a more collaborative approach to grants management.
4. While CPD estimates that in fiscal year 1997 approximately 160 intensive
on-site monitoring visits were made by the CPD field offices, our work
focused on the performance of five field offices in fiscal year
1998—accounting for approximately 20 percent of formula grant
funds—and did not reflect this level of on-site monitoring. In addition, it is
not clear what HUD means by intensive on-site monitoring, since the Grants
Management Policy Notebook does not specify the activities field offices
are to conduct during a monitoring visit.
5. We added information to the report stating that HUD has implemented a
process for tracking on-site monitoring activities, which include the
addition of Grants Management Process screens to allow field offices to
describe their on-site monitoring activities in terms of programs
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monitored, issues covered, days spent at the grantee, issues identified, and
sanctions imposed.
6. As we indicated in comment 2, we do not believe that the other steps in
the Grants Management System provide as much assurance as on-site
monitoring that grantees are managing their funds appropriately to
achieve program objectives. In addition, we disagree that most monitoring
can be done remotely at this time because of design flaws in IDIS and the
shortcomings of other monitoring tools. However, we mistakenly reported
that the Grants Management System does not ensure that monitoring
occurs; therefore we changed our report to reflect that the Grants
Management System does not ensure that on-site monitoring occurs.
7. Contrary to HUD’s comment, our report did not state that the HUD offices
did not conduct on-site visits to grantees in 1997. Rather, our review
focused on the most recent program year—1998. For 1998, we found that
the Boston Field Office conducted four monitoring visits and that six
planned visits were cancelled. In addition, during 1998, the Ft. Worth Field
Office conducted four monitoring visits and cancelled seven others. In
total, the five field offices we visited conducted 33 on-site monitoring
visits, or only 14 percent of their grantees in 1998. Moreover, our report
stated that monitoring was not always targeted to the poorest performing
grantees. Only 15 of the 38 poorest performing grantees were visited.
8. We agree that the reductions in on-site monitoring are based on
management decisions by the directors of the five field offices we visited,
but as our report indicates, these decisions were necessary because of
reductions in resources and increased workload. Furthermore, as
discussed in our report, the five field offices we visited cancelled 52
on-site monitoring visits in 1998 because of inadequate time, staff, and
budget resources, according to the directors of those offices.
9. HUD states that its field offices initiate comprehensive on-site monitoring
when conditions require, and in fiscal year 1998, these offices made 162
comprehensive on-site monitoring visits. We disagree that field offices
initiate comprehensive on-site monitoring when conditions require. As our
report stated, at the five field offices we visited, only 38 of the 85 grantees
that were scheduled for on-site monitoring visits were among the poorest
performers, and only 15 of these grantees were actually visited. It should
also be noted that the 162 on-site monitoring visits that HUD said were done
represent a small portion of the approximately 1,000 local and state
grantees. Furthermore, although the Grants Management Policy Notebook
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does not define what constitutes comprehensive on-site monitoring, our
review of the five field offices, representing 20 percent of all grant funds,
showed that of the 33 on-site visits made in 1998 only 1 was considered
comprehensive—as defined by the five field office directors.
10. The lack of specific monitoring guidance in the Grants Management
Policy Notebook allows for significant variation in the way HUD field
offices oversee almost $6 billion in formula grant funds. As our report
stated, prior to the Grants Management System, field offices were required
to follow the CPD Monitoring Handbook. This handbook specified the level
of monitoring warranted for high-risk grantees and the scope and intensity
of the on-site review.
11. HUD indicated that its field offices had conducted “Comprehensive
On-site Monitoring” at several grantees and the results of these visits were
shared with us. The results of the 33 on-site visits conducted by the five
HUD field offices we visited were the only on-site monitoring information
provided to us. We could not determine whether these were
comprehensive visits.
12. We changed our report to reflect that on September 29, 1998, HUD
promulgated risk analysis guidance that included traditional risk factors,
such as unresolved audit or monitoring findings, subrecipient activity, the
amount of program income received by the grantee, the size of the grant,
staff turnover, and the last date of monitoring.
13. Our report states that on-site monitoring is an essential tool to ensuring
that program objectives are being met and funds are being managed
appropriately because of the shortcomings of IDIS and other monitoring
tools, such as consultations, technical assistance visits, and audits by
independent public accounting firms. HUD’s program guidance also
indicates that on-site monitoring is a critical tool to determine whether
program requirements are being met. In addition, we did not state that
independent audits by public accounting firms do not provide benefits.
Our report states that HUD headquarters and field officials do not believe
that independent audits by public accounting firms produce enough
detailed program performance information. Our report also states that
these audits are not intended to provide detailed performance information
but are designed to advise federal and grantee officials and program
managers on whether an organization’s financial statements are fairly
presented and provide reasonable assurance that federal financial
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assistance programs are managed in accordance with applicable laws and
regulations.
14. We believe that standard criteria are necessary to ensure that the
riskiest grantees are identified for on-site monitoring, and once this
occurs, to establish and carry out a monitoring schedule in accordance
with the resources and workload available. The current criteria provide no
assurance that field offices will consistently emphasize factors that will
target grantees on the basis of compliance with internal controls designed
to protect against fraud and abuse.
15. HUD is right that visiting every grantee would be unrealistic. However,
our report does not state that every grantee should receive an on-site
monitoring visit. In fact, our recommendation asks HUD to emphasize the
importance of on-site monitoring by specifying the level of grantee
performance that requires on-site monitoring.
Furthermore, HUD pointed out that $26 million in Inspector General audit
findings represents only a fraction of the amount of grant funds that had
been made available between fiscal years 1996 and 1998. While this is true,
we were told by the Assistant Inspector General for Audits that the
Inspector General does not generally audit CPD programs because the
flexible nature of the block grant programs make almost any activity
eligible for program funding. Therefore, the Inspector General
concentrates its efforts on programs that produce a greater return from
the resources invested. In addition, while we agree that the amount that
will ultimately be disallowed may be less than what was questioned, it
does not negate the fact that the Inspector General found significant
problems to question $26 million in grant funding.
16. The Grants Management Process—the CPD headquarters desk officers’
primary monitoring tool—produces inconsistent and inaccurate data, as
outlined in our report. Therefore, periodic visits to field offices are
essential to ensuring that they are adequately accomplishing their annual
work plans. In addition, two field office directors told us that the level of
understanding by desk officers of field office operations is questionable.
One director said that he gets very little feedback from his desk officer.
Another said that headquarters has unrealistic expectations of the field
office because his desk officer does not understand his workload and how
time consuming it is. We received desk officer file documents as an exhibit
with HUD’s official comments on our report. After a review of these
documents, we continue to believe that CPD headquarters is not adequately
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monitoring field office operations. Specifically, the majority of the
documents provided by HUD did not concern the field offices we visited;
many of the documents were prepared after our work was completed and
we had discussed our findings with CPD headquarters; the documents
included many e-mail messages that did not appear to be related to
monitoring; the documents provided little support for field office
performance evaluations; and for all but one desk officer’s files, there was
little evidence of the use of the Grants Management Process information
system for field office remote monitoring. Additionally, in the one
complete file for a field office we visited, the desk officer concluded that
an end of the year assessment for that field office could not be done
efficiently without an on-site visit.
17. We agree that the grantees that use CPS/Community 2020 to create
their consolidated plans can send a disk to HUD for conversion into IDIS.
However, a field office IDIS focal point and several grantees told us that the
conversion process was disappointing because only four project fields are
converted. Therefore, the majority of the data have to be reentered
manually. Additionally, converting Community 2020 data to IDIS takes time,
and conversion errors occur. For these reasons, one HUD field office we
visited recommended that its grantees not send Community 2020 disks to
HUD for conversion into IDIS.
18. HUD indicates that grantees can download IDIS information into an
ASCII file (a text file with no formatting information) and write a program
to post the information to their systems. However, HUD provided no
evidence that grantees have the technical expertise to do this. In addition,
HUD indicates that grantees are recording only about 60 percent of the data
IDIS requires in their own computer systems. We believe that the burden on
the grantees is significant. For example, one grantee initially spent 8
weeks manually inputting its data into IDIS. Another grantee told us that
double entries between its local accounting system and IDIS are wasteful
and lead to mistakes.
19. HUD’s comment appears to state that CPD has a monthly report that
compares actual to planned project information. HUD did not provide this
report during our review, and we have not had a chance to evaluate it.
Nevertheless, our report stated that one grantee we visited numbered
projects differently between Community 2020 and IDIS; consequently it was
difficult to compare the grantee’s project plan with the actual use of grant
funds. We do not know whether CPD’s report addresses this problem.
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20. See comments 17 and 18.
21. We changed our report to clarify that HUD cannot use IDIS to determine
how much program income is being generated from revolving funds,
rather than stating that HUD has no way of knowing how much program
income is being generated from revolving funds. However, we disagree
that the “Federal Cash Transactions Report,” SF 272, can be used to track
program income from revolving funds. Like IDIS, it can only be used to
track program income from nonrevolving funds. In addition, on March 29,
1999, the HUD Inspector General reported on HUD’s fiscal year 1998
financial statements, stating that grantees were not submitting the
quarterly cash transaction report. This problem was accentuated by the
fact that, because of the way IDIS processes program income, some
grantees were not entering this information. As a result, CPD staff did not
know how much program income was being produced by grantees who
were not entering this information into IDIS and did not submit the report.
22. Our report does not indicate that IDIS was intended to replace grantees’
accounting systems.
23. While a positive step to improving the data already in IDIS, the data
quality review effort HUD describes will not alter grantees’ ability to draw
funds without entering performance data.
24. We disagree. We believe that the survey results support our finding that
it is difficult and cumbersome to use the IDIS reporting functions. For
example, the survey results show that the reports module is not
user-friendly. Specifically, the survey report states, “The process to
print/download reports is considered cumbersome, time-consuming and
not user-friendly.”
25. We agree that the grantee has the first level of responsibility for
notifying HUD to remove IDIS access rights for former grantee employees.
However, as our report indicates, HUD has not placed a high priority on
fulfilling grantees’ requests to remove IDIS access rights for former
employees. Also see comment 28.
26. While we agree that it is not practical to segregate responsibilities for a
small number of grantees, this does not justify HUD’s lack of action to
ensure that grantee staff members have limited or segregated access to
IDIS.
Page 79 GAO/RCED-99-98 Community Development
Appendix I
Comments From the Department of Housing
and Urban Development
27. Our report does not indicate that HUD should contact the local
authorizing official prior to assigning access rights. Our report states that
at the time of our review, HUD had not produced any periodic reports for
grantee and field office staff that showed the current access rights of
grantee staff.
28. While we agree that automatic suspensions are beneficial, the system is
still susceptible to unauthorized access until the automatic suspension
takes place. Additionally, access to the system will not automatically
expire if someone continues to use the account. According to the Federal
Information Processing Standards Publication Standards for Password
Usage (FIPS PUB 112), 3.3.4, “Passwords shall be deleted or replaced with
an invalid password as quickly as possible but at least within 3 working
days from the time that an owner is no longer an authorized ADP system
user or any one of a set of owners is no longer authorized access to the
data.”
29. We have agreed with HUD not to print this comment and not respond to
it because of concerns over IDIS security.
30. We believe that security requirements should be developed by staff
who have a basic knowledge of computer security issues. Guidance for
establishing appropriate security is given in the Federal Information
Processing Standards Publication Guidelines for Security of Computer
Applications (FIPS PUB 73).
Page 80 GAO/RCED-99-98 Community Development
Appendix II
Major Contributors to This Report
Keith Cunningham
Resources, Barbara Johnson
Community and Frank J. Minore
Economic Robert Procaccini
Carol Herrnstadt Shulman
Development Division John H. Skeen, III
Howard M. Williams Jr.
Office of Information
Management and
Communications
(385731) Page 81 GAO/RCED-99-98 Community Development
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